Standing Committee B

[Mr. Win Griffiths in the Chair]

Pensions Bill

New Clause 2 - Effect of determination to wind up scheme on freezing order

No. NC2, to move the following Clause:— 
 '(1) This section applies where—
(a) the Regulator determines to make an order under section 11 of the Pensions Act 1995 (c.26) (power to wind up occupational pension schemes) in relation to a scheme (''a winding up order''),
(b) that determination is made during the period for which a freezing order has effect in relation to the scheme,
(c) the case is not one to which the special procedure in section 72 applies (immediate exercise of powers where immediate risk to assets etc), and
(d) the winding up order accordingly cannot be made until the expiry of the period specified in section 70(4) (no exercise during period of referral to the Tribunal etc).
 (2) In such a case the freezing order is to continue to have effect until—
(a) where the winding up order is made, it ceases to have effect under section 24 from the time when that order is made, or
(b) the determination to make the winding up order is revoked.
 (3) Subsection (2) is subject to the Regulator's power under section 75 to revoke the freezing order at any time.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 3 - Reports by skilled persons

No. NC3, to move the following Clause:— 
 '(1) The Regulator may issue a notice (a ''report notice'') to—
(a) the trustees or managers of a work-based pension scheme,
(b) any employer in relation to such a scheme, or
(c) any person who is otherwise involved in the administration of such a scheme,
requiring them or, as the case may be, him to provide the Regulator with a report on one or more specified matters which are relevant to the exercise of any of the Regulator's functions.
 (2) A report notice must require the person appointed to make the report to be a person—
(a) nominated or approved by the Regulator, and
(b) appearing to the Regulator to have the skills necessary to make a report on the matter or matters concerned.
 (3) A report notice may require the report to be provided to the Regulator—
(a) in a specified form;
(b) before a specified date.
 (4) The costs of providing a report in accordance with a report notice must be met by the person to whom the notice is issued (''the notified person'').
 (5) But a report notice may require a specified person (other than the Regulator) to reimburse to the notified person the whole or any part of the costs of providing the report.
 (6) Where, by virtue of subsection (5), an amount is required to be reimbursed by a specified person to the notified person, that amount is to be treated as a debt due from the specified person to the notified person.
 (7) If the trustees or managers of a work-based pension scheme fail to comply with a report notice issued to them, section 10 of the Pensions Act 1995 (c. 26) (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.
 (8) That section also applies to any other person who, without reasonable excuse, fails to comply with a report notice issued to him.
 (9) Where a report notice is issued, any person who is providing (or who at any time has provided) services to the notified person in relation to a matter on which the report is required must give the person appointed to make the report such assistance as he may reasonably require.
 (10) The duty imposed by subsection (9) is enforceable, on the application of the Regulator, by an injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988 (c. 36).
 (11) In this section—
''specified'', in relation to a report notice, means specified in the notice;
''work-based pension scheme'' has the same meaning as in section 5 (Regulator's objectives).'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 10 - Schemes required to wind up but unable to buy out liabilities

No. NC10, to move the following Clause:— 
 '(1) This section applies where section 120(2) or (2A) (scheme rescue not possible but scheme has sufficient assets to meet the protected liabilities) applies in relation to an eligible scheme.
 (2) If the trustees or managers of the scheme are unable to obtain a full buy-out quotation, they must, within the authorised period, apply to the Board for authority to continue as a closed scheme.
 (3) For the purposes of determining whether they must make an application under subsection (2), the trustees and managers of the scheme must take all reasonable steps to obtain a full buy-out quotation in respect of the scheme.
 (4) An application under subsection (2) must—
(a) be in the prescribed form and contain the prescribed information, and
(b) be accompanied by evidence in the prescribed form which shows that the trustees or managers of the scheme have complied with the obligation under subsection (3) but were unable to obtain a full buy-out quotation.
 (5) Where the Board receives an application under subsection (2), if it is satisfied that the trustees or managers have complied with the obligation under subsection (3) but were unable to obtain a full buy-out quotation, it must authorise the scheme to continue as a closed scheme.
 (6) Where the Board determines an application in respect of a scheme under this section, it must issue a determination notice and give a copy of that notice to—
(a) the trustees or managers of the scheme, and
(b) the Regulator.
 (7) In this section—
''authorised period'' has the same meaning as in section 120;
''determination notice'' means a notice which is in the prescribed form and contains such information about the determination as may be prescribed;
''full buy-out quotation'', in relation to a scheme, means a quotation for one or more annuities from one or more insurers (being companies willing to accept payment in respect of the members from the trustees or managers of the scheme) which would provide in respect of each member of the scheme, from a relevant date, benefits in accordance with the member's entitlement or accrued rights, including pension credit rights, under the scheme (other than his entitlement or rights in respect of money purchase benefits);
''pension credit rights'' has the meaning given in section 124(1) of the Pensions Act 1995;
''relevant date'' means a date within the authorised period.
 (8) If the trustees or managers of the scheme fail to comply with subsection (2) or (3), section 10 of the Pensions Act 1995 (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 11 - Treatment of closed schemes required to wind up

No. NC11, to move the following Clause:— 
 '(1) In this section ''closed scheme'' means an eligible scheme which is authorised under section [schemes required to wind up but unable to buy out liabilities] to continue as a closed scheme.
 (2) The provisions mentioned in subsection (3) apply in relation to a closed scheme at any time when the trustees or managers of the scheme are required to wind up or continue winding up the scheme under section 119 as if that time fell within an assessment period in relation to the scheme.
 (3) The provisions are—
(a) section 105 (admission of new members, payment of contributions etc);
(b) section 106 (directions);
(c) section 109 (Board to act as creditor of the employer).
 (4) Section 105, as it applies by virtue of subsection (2), does not preclude the admission to a closed scheme of new pension credit members (within the meaning of section 124(1) of the Pensions Act 1995).'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 12 - Valuations of closed schemes

No. NC12, to move the following Clause:— 
 '(1) Regulations may make provision requiring the trustees or managers of closed schemes to obtain actuarial valuations of the scheme at such intervals as may be prescribed for the purposes of enabling them to determine—
(a) the benefits payable under the scheme;
(b) whether to make an application under section [applications and notifications where closed schemes have insufficient assets].
 (2) Regulations under this section may prescribe how—
(a) the assets, the full scheme liabilities and the protected liabilities in relation to closed schemes, and
(b) their amount or value,
are to be determined, calculated and verified.
 (3) Subject to any provision made under subsection (2), those matters are to be determined, calculated and verified in accordance with guidance issued by the Board.
 (4) In calculating the amount of any liabilities for the purposes of a valuation required by virtue of this section, a provision of the scheme which limits the amount of its liabilities by reference to the value of its assets is to be disregarded.
 (5) In this section, in relation to a scheme—
''actuarial valuation'' means a written valuation of—
(a) the scheme's assets,
(b) the full scheme liabilities, and
(c) the protected liabilities in relation to the scheme;
''the actuary'' means—
(a) the actuary appointed under section 47(1)(b) of the Pensions Act 1995 (professional advisers) in relation to the scheme, or
(b) if no such actuary has been appointed, a person with prescribed qualifications;
''assets'' do not include assets representing the value of any rights in respect of money purchase benefits under the scheme;
''closed scheme'' has the same meaning as in section [treatment of closed schemes required to wind up];
''full scheme liabilities'' means—
(a) the liabilities under the scheme to or in respect of members of the scheme,
(b) other liabilities of the scheme, and
(c) the estimated cost of winding up the scheme;
''liabilities'' does not include liabilities in respect of money purchase benefits under the scheme.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 13 - Applications and notifications where closed schemes have insufficient assets

No. NC13, to move the following Clause:— 
 '(1) If at any time the trustees or managers of a closed scheme become aware that the value of the assets of the scheme is less than the amount of the protected liabilities in relation to the scheme, they must, before the end of the prescribed period beginning with that time, make an application to the Board for it to assume responsibility for the scheme.
 (2) Where the Board receives an application under subsection (1), it must give a copy of the application to the Regulator.
 (3) If at any time the Regulator becomes aware that the value of the assets of the scheme is less than the amount of the protected liabilities in relation to the scheme, it must give the Board a notice to that effect.
 (4) Where the Board receives a notice under subsection (3), it must give the trustees or managers of the scheme a notice to that effect.
 (5) The duty imposed by subsection (1) does not apply where the trustees or managers of an eligible scheme become aware as mentioned in that subsection by reason of a notice given to them under subsection (4).
 (6) The duty imposed by subsection (3) does not apply where the Regulator becomes aware as mentioned in that subsection by reason of a copy of an application made by the trustees or managers of the eligible scheme being given to it under subsection (2).
 (7) Regulations may require notices and applications under this section to be in the prescribed form and contain the prescribed information.
 (8) If the trustees or managers of an eligible scheme fail to comply with subsection (1), section 10 of the Pensions Act 1995 (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.
 (9) In this section closed scheme has the same meaning as in section [treatment of closed schemes required to wind up].'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

Column Number: 737

New Clause 14Duty to assume responsibility for closed schemes

Duty to assume responsibility for closed schemes

No. NC14, to move the following Clause:— 
 '(1) Where the trustees or managers of a closed scheme—
(a) make an application under subsection (1) of section [applications and notifications where closed schemes have insufficient assets], or
(b) receive a notice from the Board under subsection (4) of that section,
the Board must assume responsibility for the scheme in accordance with this Chapter if the value of the assets of the scheme at the relevant time was less than the amount of the protected liabilities at that time.
 (2) In subsection (1) the reference to the assets of the scheme is a reference to those assets excluding any assets representing the value of any rights in respect of money purchase benefits under the scheme.
 (3) For the purposes of determining whether the condition in subsection (1) is satisfied, the Board must, as soon as reasonably practicable, obtain an actuarial valuation (within the meaning of section 112(3)) of the scheme as at the relevant time.
 (4) Subject to subsection (6), the following provisions apply in relation to a valuation obtained under subsection (3) as they apply in relation to a valuation obtained under section 112—
(a) subsections (4) to (6) and (8) of that section;
(b) section 113 (approval of valuation), other than subsection (2)(b) (iii) (duty to give copy of approved valuation to employer's insolvency practitioner);
(c) section 114 (binding valuations), other than subsection (3)(b) (duty to give copy of binding valuation to employer's insolvency practitioner).
 (5) In the application of section 114 by virtue of subsection (4), subsection (2) of that section applies as if the reference to section 100(2)(a) included a reference to subsection (1) of this section.
 (6) In this section—
''closed scheme'' has the same meaning as in section [treatment of closed schemes required to wind up];
''the relevant time'' means the time immediately before the application mentioned in subsection (1)(a) was made, or (as the case may be) the notice mentioned in subsection (1)(b) was received, by the trustees or managers of the scheme.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 15 - Closed schemes: further assessment periods

No. NC15, to move the following Clause:— 
 '(1) This section applies where—
(a) an application is made under subsection (1) of section [applications and notifications where closed schemes have insufficient assets] in relation to a closed scheme, or
(b) the trustees or managers of the scheme receive a notice under subsection (4) of that section.
 (2) An assessment period —
(a) begins when the application is made or the notice is received by the trustees or managers of the scheme, and
(b) ends when—
(i) the trustees or managers receive a transfer notice under section 122, or
(ii) the conditions in section 119(5) (closed scheme with sufficient assets to meet protected liabilities etc) are satisfied in relation to the scheme,
whichever first occurs.
 (3) In this section ''closed scheme'' has the same meaning as in section [treatment of closed schemes required to wind up].'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 16 - Meaning of ''reviewable matters''

No. NC16, to move the following Clause:— 
 '(1) For the purposes of this Chapter, ''reviewable matter'' means a matter mentioned in Schedule [Reviewable matters].
 (2) Regulations may provide, in relation to any reference in that Schedule to a failure by the Board to do any act or make any determination, that the reference is to be construed as a reference to a failure by the Board to do the act or make the determination within a prescribed period.
 (3) Regulations may amend that Schedule by—
(a) adding to it any other description of determination, act or failure of, or matter determined or for determination by, the Board, or
(b) removing from it any such determination, act, failure or matter for the time being mentioned in it.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 21 - Deputy PPF Ombudsmen

'(1) The Secretary of State may appoint one or more persons to act as a deputy to the PPF Ombudsman (''a Deputy PPF Ombudsman'').
 (2) Any such appointment is to be on such terms and conditions as the Secretary of State determines.
 (3) A Deputy PPF Ombudsman—
(a) is to hold and vacate office in accordance with the terms and conditions of his appointment, and
(b) may resign or be removed from office in accordance with those terms and conditions.
 (4) A Deputy PPF Ombudsman may perform the functions of the PPF Ombudsman—
(a) during any vacancy in that office,
(b) at any time when the PPF Ombudsman is for any reason unable to discharge his functions, or
(c) at any other time, with the consent of the Secretary of State.
 (5) References to the PPF Ombudsman in relation to the performance of his functions are accordingly to be construed as including references to a Deputy PPF Ombudsman in relation to the performance of those functions.
 (6) An order by the Secretary of State under section 170(6) may make provision—
(a) about the payment, or provision for payment, of remuneration, compensation for loss of office, pension, allowances or gratuities to or in respect of a Deputy PPF Ombudsman;
(b) about the reimbursement of any expenses incurred by a Deputy PPF Ombudsman in the performance of any of the PPF Ombudsman's functions.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

Column Number: 739

New Clause 22Publishing reports etc

Publishing reports etc

'(1) If the PPF Ombudsman considers it appropriate to do so in any particular case, he may publish in such form and manner as he considers appropriate a report of any investigation carried out by virtue of regulations under section 173 or 174 and of the result of that investigation.
 (2) For the purposes of the law of defamation, the publication of any matter by the PPF Ombudsman under or by virtue of any provision of this Chapter shall be absolutely privileged.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 23 - The Pensions Ombudsman and Deputy Pensions Ombudsmen

'(1) In subsection (2) of section 145 of the Pension Schemes Act 1993 (c. 48) (the Pensions Ombudsman) after ''hold'' insert ''and vacate''.
 (2) For subsection (3) of that section substitute—
 ''(3) The Pensions Ombudsman may resign or be removed from office in accordance with those terms and conditions.''.
 (3) After that section insert—
 ''145A Deputy Pensions Ombudsmen
 (1) The Secretary of State may appoint one or more persons to act as a deputy to the Pensions Ombudsman (''a Deputy Pensions Ombudsman'').
 (2) Any such appointment is to be upon such terms and conditions as the Secretary of State thinks fit.
 (3) A Deputy Pensions Ombudsman—
(a) is to hold and vacate office in accordance with the terms and conditions of his appointment, and
(b) may resign or be removed from office in accordance with those terms and conditions.
 (4) A Deputy Pensions Ombudsman may perform the functions of the Pensions Ombudsman—
(a) during any vacancy in that office,
(b) at any time when the Pensions Ombudsman is for any reason unable to discharge his functions, or
(c) at any other time, with the consent of the Secretary of State.
 (5) References to the Pensions Ombudsman in relation to the performance of his functions are accordingly to be construed as including references to a Deputy Pensions Ombudsman in relation to the performance of those functions.
 (6) The Secretary of State may—
(a) pay to or in respect of a Deputy Pensions Ombudsman such amounts—
(i) by way of remuneration, compensation for loss of office, pension, allowances and gratuities, or
(ii) by way of provision for any such benefits,
as the Secretary of State may determine, and
(b) reimburse the Pensions Ombudsman in respect of any expenses incurred by a Deputy Pensions Ombudsman in the performance of any of the Pensions Ombudsman's functions.''
 (4) In Part 3 of Schedule 1 to the House of Commons Disqualification Act 1975 (c. 24) (other disqualifying offices), after ''Pensions Ombudsman'' insert ''and any deputy to that Ombudsman appointed under section 145A of the Pension Schemes Act 1993.''.
 (5) In Part 3 of Schedule 1 to the Northern Ireland Assembly Disqualification Act 1975 (c. 25) (other disqualifying offices), at the appropriate place insert—
 ''Pensions Ombudsman and any deputy to that Ombudsman appointed under section 145A of the Pension Schemes Act 1993''.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 24 - Jurisdiction

'(1) After section 146(4) of the Pension Schemes Act 1993 (c. 48) (power to apply Part 10 of that Act to those concerned with the administration of a scheme) insert—
 ''(4A) For the purposes of subsection (4) a person or body of persons is concerned with the administration of an occupational or personal pension scheme where the person or body is responsible for carrying out an act of administration concerned with the scheme.''
 (2) The amendment made by this section has effect in relation to the making of any provision under section 146(4) of the Pension Schemes Act 1993 (c.48) applying Part 10 of that Act in relation to a complaint or a dispute in so far as it relates to a matter which arises on or after the day on which this section comes into force.
 (3) For the purposes of subsection (2), a question falling within section 146(1)(g) of the Pension Schemes Act 1993 (c. 48) is to be treated as a dispute.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 25 - Investigations

'(1) Omit section 54 of the Child Support, Pensions and Social Security Act 2000 (c.19) (''the 2000 Act'') (which amends sections 148, 149 and 151 of the Pension Schemes Act 1993 (c. 48) and which has not been brought into force except for the purpose of making regulations and rules).
 (2) Omit the following provisions of the Pension Schemes Act 1993 (c. 48) —
(a) section 148(5)(ba) and (bb) as inserted by section 54(2) of the 2000 Act,
(b) section 149(1), (1A) and (1B) as substituted by section 54(3) of the 2000 Act,
(c) section 149(3)(ba) as substituted by section 54(4) of the 2000 Act,
(d) section 149(3)(d) and the word ''and'' immediately preceding it as inserted by section 54(5) of the 2000 Act,
(e) section 149(8) as inserted by section 54(6) of the 2000 Act,
(f) section 151(1)(c) and the word ''and'' immediately preceding it as inserted by section 54(7) of the 2000 Act,
(g) section 151(3)(ba) and (bb) as substituted by section 54(8) of the 2000 Act, and
(h) in section 151(3)(c) the words ''any of paragraphs (a) to (bb)'' as inserted by section 54(8) of the 2000 Act,
to the extent that those amendments made by section 54 of the 2000 Act have been brought into force for the purpose of making regulations and rules.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 26 - Voluntary contributions

'(1) Omit section 111 of the Pension Schemes Act 1993 (c. 48) (requirements for schemes to provide facilities for members to pay voluntary contributions, and relating to any such contributions).
 (2) In section 132 of that Act (duty to bring schemes into conformity with indirectly-applying requirements) omit from ''or the voluntary'' to third ''requirements''.
 (3) In section 181(1) of that Act (general interpretation) omit the definition of ''voluntary contributions requirements''.'.—[Malcolm Wicks.]
 Brought up, read the First and Second time, and added to the Bill.

New Clause 30 - Modification of subsisting rights

'For section 67 of the Pensions Act 1995 (c. 26) substitute—
67 The subsisting rights provisions
 (1) The subsisting rights provisions apply to any power conferred on any person by an occupational pension scheme, other than a public service pension scheme, to modify the scheme.
 (2) Any exercise of such a power to make a regulated modification is voidable in accordance with section 67G unless the following are satisfied in respect of the modification—
(a) in the case of each affected member—
(i) if the modification is a protected modification, the consent requirements (see section 67B),
(ii) if it is not, either the consent requirements or the actuarial equivalence requirements (see section 67C),
(b) the trustee approval requirement (see section 67E), and
(c) the reporting requirement (see section 67F).
 (3) The subsisting rights provisions do not apply in relation to the exercise of a power—
(a) for a purpose connected with debits under section 29(1) of the Welfare Reform and Pensions Act 1999, or
(b) in a prescribed manner.
 (4) References in this section and sections 67A to 67I to ''the subsisting rights provisions'' are to this section and those sections.
 (5) Subsection (6) applies in relation to the exercise of a power to which the subsisting rights provisions apply to make a regulated modification where a member of the scheme dies before the requirements mentioned in subsection (2), so far as they apply in his case, have been complied with in respect of the modification if—
(a) before he died he had given his consent to the modification in accordance with section 67B(4)(b), or
(b) before he died, or before the trustees of the scheme had become aware that he had died, the trustees had complied with section 67C(4)(a), (b) and (d) in respect of the modification in his case.
 (6) Any of the requirements mentioned in subsection (2), as it applies in respect of the modification—
(a) which is satisfied in the case of the member, or
(b) which would have been satisfied in his case had he not died before it was satisfied,
is to be taken to be satisfied in the case of any survivor of the member in respect of the modification.
67A The subsisting rights provisions: interpretation
 (1) In the subsisting rights provisions, each of the following expressions has the meaning given to it by the following provisions of this section—
''regulated modification''
''protected modification''
''detrimental modification''
''affected member''
''subsisting right''
''scheme rules''.
 (2) ''Regulated modification'' means a modification which is—
(a) a protected modification, or
(b) a detrimental modification,
or is both.
 (3) ''Protected modification'' means a modification of an occupational pension scheme which—
(a) on taking effect would or might result in any subsisting right of—
(i) a member of the scheme, or
(ii) a survivor of a member of the scheme,
which is not a right or entitlement to money purchase benefits becoming, or being replaced with, a right or entitlement to money purchase benefits under the scheme rules,
(b) would or might result in a reduction in the prevailing rate of any pension in payment under the scheme rules, or
(c) is of a prescribed description.
For the purposes of paragraph (a), the reference in the definition of ''money purchase benefits'' in section 181(1) of the Pension Schemes Act 1993 to the widow or widower of a member of an occupational pension scheme is to be read as including any other survivor of the member.
 (4) ''Detrimental modification'' means a modification of an occupational pension scheme which on taking effect would or might adversely affect any subsisting right of—
(a) any member of the scheme, or
(b) any survivor of a member of the scheme.
 (5) A person is an ''affected member''—
(a) in relation to a protected modification within paragraph (a) or (b) of subsection (3), if, at the time the modification takes effect, he is—
(i) a member of the scheme, or
(ii) a survivor of a member of the scheme,
and, on taking effect, the modification would or might affect any of his subsisting rights as mentioned in that paragraph,
(b) in relation to a protected modification within paragraph (c) of that subsection, if he is of a prescribed description, and
(c) in relation to a detrimental modification which is not a protected modification if, at the time the modification takes effect, he is—
(i) a member of the scheme, or
(ii) a survivor of a member of the scheme,
and, on taking effect, the modification would or might adversely affect any of his subsisting rights.
 (6) ''Subsisting right'' means—
(a) in relation to a member of an occupational pension scheme, at any time—
(i) any right which at that time has accrued to or in respect of him to future benefits under the scheme rules, or
(ii) any other entitlement to benefits which he has at that time, under the scheme rules, and
(b) in relation to the survivor of a member of an occupational pension scheme, at any time, any entitlement to benefits, or right to future benefits, which he has at that time under the scheme rules in respect of the member.
For this purpose, ''right'' includes a pension credit right.
 (7) ''Scheme rules'', in relation to a scheme, means—
(a) the rules of the scheme, except so far as—
(i) paragraph 3 of Schedule 5 to the Social Security Act 1989,
(ii) section 129 of the Pension Schemes Act 1993,
(iii) section 117 of this Act, or
(iv) section 230 of the Pensions Act 2004,
overrides them,
(b) any provision of any of those Acts which overrides or modifies any of the rules of the scheme by virtue of one of the provisions mentioned in paragraph (a), and
(c) any provision which the rules of the scheme do not contain but which the scheme must contain if it is to conform with the requirements of Chapter 1 of Part 4 of the Pension Schemes Act 1993 (preservation of benefit under occupational pension schemes).
 (8) For the purposes of this section—
(a) ''survivor'', in relation to a member of an occupational pension scheme, means a person who—
(i) is the widow or widower of the member, or
(ii) has survived the member and has any entitlement to benefit, or right to future benefits, under the scheme rules in respect of the member, and
(b) a modification would or might adversely affect a person's subsisting right if it would alter the nature or extent of the entitlement or right so that the benefits, or future benefits, to which the entitlement or right relates would or might be less generous.
 (9) In the subsisting rights provisions, in relation to—
(a) the exercise of a power to modify an occupational pension scheme to which the subsisting rights provisions apply, or
(b) a modification made, or to be made, in exercise of such a power,
references to ''the scheme'' are to be read as references to the scheme mentioned in paragraph (a).
67B The consent requirements
 (1) References in the subsisting rights provisions to the consent requirements, in respect of a regulated modification, are to be read in accordance with this section.
 (2) The consent requirements apply in the case of an affected member—
(a) if the modification is a protected modification;
(b) if it is not a protected modification, unless the actuarial equivalence requirements apply in his case.
 (3) The consent requirements consist of—
(a) the informed consent requirement (see subsection (4)), and
(b) the timing requirement (see subsection (6)).
 (4) The informed consent requirement is satisfied in the case of an affected member if before the modification is made—
(a) the trustees have—
(i) given him information in writing adequate to explain the nature of the modification and its effect on him,
(ii) notified him in writing that he may make representations to the trustees about the modification,
(iii) afforded him a reasonable opportunity to make such representations, and
(iv) notified him in writing that the consent requirements apply in his case in respect of the modification, and
(b) after the trustees have complied with paragraph (a)(i), (ii) and (iv), the affected member has given his consent in writing to the modification.
 (5) The trustees are to be taken to have notified an affected member as mentioned subsection (4)(a)(iv) if they have notified him in writing that—
(a) if he gives his consent to the modification for the purposes of the consent requirements, those requirements apply in his case in respect of the modification, but
(b) otherwise, the actuarial equivalence requirements apply in his case in respect of the modification.
 (6) The timing requirement is satisfied in the case of an affected member if the modification takes effect within a reasonable period after the member has given his consent to the modification in accordance with subsection (4)(b).
67C The actuarial equivalence requirements
 (1) References in the subsisting rights provisions to the actuarial equivalence requirements, in respect of a detrimental modification which is not a protected modification, are to be read in accordance with this section and section 67D.
 (2) The actuarial equivalence requirements apply in the case of an affected member only if—
(a) the modification is not a protected modification, and
(b) the trustees of the scheme determine that they are to apply in his case.
 (3) The actuarial equivalence requirements consist of—
(a) the information requirement (see subsection (4)),
(b) the actuarial value requirement (see subsection (5)), and
(c) the actuarial equivalence statement requirement (see subsection (6)).
 (4) The information requirement is satisfied in the case of an affected member if before the modification is made the trustees have taken all reasonable steps to—
(a) give him information in writing adequate to explain the nature of the modification and its effect on him,
(b) notify him in writing that he may make representations to the trustees about the modification,
(c) afford him a reasonable opportunity to make such representations, and
(d) notify him in writing that the actuarial equivalence requirements apply in his case in respect of the modification.
 (5) The actuarial value requirement is satisfied in the case of an affected member if before the modification is made the trustees have made such arrangements, or taken such steps, as are adequate to secure that actuarial value will be maintained.
 (6) The actuarial equivalence statement requirement is satisfied in the case of an affected member if the trustees have, within a reasonable period beginning with the date on which the modification takes effect, obtained an actuarial equivalence statement relating to the affected member in respect of the modification.
 (7) For the purposes of subsection (6) ''actuarial equivalence statement'' means a statement in writing which—
(a) is given by—
(i) the actuary appointed in relation to the scheme under section 47(1)(b), or
(ii) a person of a prescribed description, and
(b) certifies that actuarial value has been maintained.
 (8) For the purposes of subsections (5) and (7) as they apply in relation to an affected member, actuarial value is maintained if the actuarial value, immediately after the time at which the modification takes effect, of the affected member's subsisting rights is equal to or greater than the actuarial value of his subsisting rights immediately before that time.
67D The actuarial equivalence requirements: further provisions
 (1) This section applies for the purposes of section 67C.
 (2) Where—
(a) the information requirement has been satisfied in the case of an affected member in respect of a proposed modification (''the original modification''),
(b) before the trustees have made a determination, or given their consent, for the purposes of section 67E(1) in relation to the original modification, the original modification has been revised, and
(c) the modification as so revised (''the revised modification'') does not differ from the original modification in any material respect,
the information requirement is to be taken to have been satisfied in relation to the revised modification.
 (3) The trustees are to be regarded as having taken all reasonable steps to notify an affected member as mentioned in section 67C(4)(d) in respect of a modification if they have taken all reasonable steps to notify him in writing that—
(a) if he gives his consent to the modification for the purposes of the consent requirements, those requirements apply in his case in respect of the modification, but
(b) otherwise, the actuarial equivalence requirements apply in his case in respect of the modification.
 (4) Any calculation for the purposes of section 67C of the actuarial value of an affected member's subsisting rights at any time must conform with such requirements as may be prescribed.
 (5) Requirements prescribed by regulations under subsection (4) may include requirements for any such calculation to be made in accordance with guidance that—
(a) is prepared and from time to time revised by a prescribed body, and
(b) if the regulations so provide, is approved by the Secretary of State.
 (6) Nothing in subsections (6) and (7) of section 67C precludes actuarial equivalence statements relating to—
(a) two or more affected members, or
(b) affected members of any particular description,
 in respect of a modification being given in a single document. 
67E The trustee approval requirement
 (1) For the purposes of section 67(2)(b), the trustee approval requirement is satisfied in relation to the exercise of a power to make a regulated modification if—
(a) the trustees of the scheme have determined to exercise the power to make the modification, or
(b) if the power is exercised by another person, the trustees have consented to the exercise of the power to make the modification,
and the making of the determination, or giving of consent, complies with subsections (2) and (3).
 (2) The trustees must not make a determination, or give their consent, for the purposes of subsection (1) unless, in the case of each affected member—
(a) if the modification is a protected modification, the informed consent requirement is satisfied (within the meaning of section 67B), or
(b) if it is not—
(i) the informed consent requirement is satisfied, or
(ii) the information and actuarial value requirements are satisfied (within the meaning of section 67C),
in respect of the modification.
 (3) The trustees must not make a determination, or give their consent, for the purposes of subsection (1) more than a reasonable period after the first consent given by an affected member under section 67B(4)(b) in respect of the modification was given.
67F The reporting requirement
 (1) For the purposes of section 67(2)(c), the reporting requirement is satisfied in relation to the exercise of a power to which the subsisting rights provisions apply to make a regulated modification if the trustees have, in accordance with subsection (2)—
(a) notified each affected member in whose case the consent requirements apply in respect of the modification, and
(b) taken all reasonable steps to notify each affected member in whose case the actuarial equivalence requirements apply in respect of the modification,
that they have made a determination, or given their consent, for the purposes of section 67E(1) in relation to the exercise of the power to make the modification.
 (2) The trustees must give (or, where the actuarial equivalence requirements apply, take all reasonable steps to give) the notification—
(a) within a reasonable period beginning with the date of the determination or giving of consent mentioned in subsection (1), and
(b) before the date on which the modification takes effect.
67G Powers of the Authority: voidable modifications
 (1) Subsection (2) applies in relation to a regulated modification made in exercise of a power to which the subsisting rights provisions apply which is voidable by virtue of—
(a) section 67(2), or
(b) section 67H(3).
 (2) The Authority may make an order declaring that subsection (6) applies in relation to the regulated modification.
 (3) An order under subsection (2) relating to a regulated modification may also declare that subsection (6) applies in relation to—
(a) any other modification of the scheme made by the exercise of the power mentioned in subsection (1), or
(b) the grant of any rights under the scheme (whether by virtue of the attribution of notional periods as pensionable service or otherwise) in connection with the regulated modification.
 (4) An order under subsection (2) relating to a regulated modification must specify the affected member or affected members or description of affected members in respect of whom subsection (6) applies (''the specified persons'').
 (5) An order under subsection (2) relating to a regulated modification may also—
(a) require the trustees to take, within the time specified in the order, such steps as are so specified for the purpose of giving effect to the order;
(b) declare that subsection (7) applies in relation to anything done by the trustees after the time at which the modification would, disregarding the order, have taken effect which—
(i) would not have contravened any provision of the scheme rules if the modification had taken effect at that time, but
(ii) as a result of the modification being void to any extent by virtue of the order, would (but for that subsection) contravene such a provision.
This is without prejudice to section 174(3).
 (6) Where the Authority make an order declaring that this subsection applies in relation to a modification of a scheme, or the grant of any rights under the scheme, the modification or grant is void to the extent specified in the order, and in respect of the specified persons, as from the time when it would, disregarding the order, have taken effect.
 (7) Where, by virtue of subsection (5)(b), the Authority make an order under subsection (2) declaring that this subsection applies in relation to anything done by the trustees, that thing is to be taken, for such purposes as are specified in the order, not to have contravened any provision of the trust deed or scheme rules.
 (8) An order under subsection (2) relating to a regulated modification, or other modification, of a scheme or the grant of any rights under the scheme may be made before or after the time at which the modification or grant would, disregarding the order, have taken effect.
67H Powers of the Authority to intervene
 (1) Subsection (2) applies where the Authority have reasonable grounds to believe that a power to which the subsisting rights provisions apply—
(a) will be exercised, or
(b) has been exercised,
to make a regulated modification in circumstances where the modification will be voidable by virtue of section 67(2).
 (2) The Authority may by order—
(a) in a case within subsection (1)(a), direct the person on whom the power is conferred not to exercise the power to make the regulated modification;
(b) require the trustees to take, within the time specified in the order, such steps as are so specified for the purpose of securing that any of the requirements mentioned in section 67(2) is satisfied.
 (3) A regulated modification made in exercise of a power to which the subsisting rights provisions apply is voidable in accordance with section 67G if—
(a) the exercise of the power contravened an order under paragraph (a) of subsection (2), or
(b) the trustees fail to comply with a requirement imposed by an order under paragraph (b) of that subsection relating to any exercise of the power to make the modification.
67I Subsisting rights requirements: civil penalties
 (1) Subsections (2) and (3) apply where a regulated modification is voidable by virtue of section 67(2).
 (2) Where the modification was made by the exercise of a power—
(a) by the trustees of the scheme, or
(b) by any other person in circumstances which do not fall within subsection (3),
section 10 applies to any trustee who has failed to take all reasonable steps to secure that the modification is not so voidable.
 (3) Section 10 applies to any person other than the trustees of the scheme who, without reasonable excuse, exercises a power to make the modification if—
(a) the trustees have not given their consent, for the purposes of section 67E(1), to the exercise of the power to make the modification, or
(b) in the case of any affected member, the timing requirement is not satisfied (within the meaning of section 67B) in respect of the modification.
 (4) Where the trustees fail to comply with any requirement imposed, by virtue of subsection (5)(a) of section 67G, by an order under subsection (2) of that section, section 10 applies to any trustee who has failed to take all reasonable steps to secure such compliance.
 (5) Where a regulated modification is made by the exercise of a power in contravention of an order under section 67H(2)(a)—
(a) if the power is exercised by the trustees, section 10 applies to any trustee who has failed to take all reasonable steps to secure that the order was not contravened,
(b) section 10 applies to any other person who without reasonable excuse exercises the power in contravention of the order.
 (6) Where the trustees fail to comply with any requirement specified in an order under section 67H(2)(b), section 10 applies to any trustee who has failed to take all reasonable steps to secure such compliance.''.'.—[Malcolm Wicks.]
 Brought up, and read the First time.

Malcolm Wicks: I beg to move, That the clause be read a Second time.
 Good morning, Mr. Griffiths. This may be our last day in Committee, but if we need to sit on Thursday, we can do so. The formalities that we have just gone through rather remind me of when one is trying to follow a drama that spreads over six weeks on television; sometimes, at the beginning of a new episode, they remind the viewer of what has gone before. That was exciting. 
 I have always lived in hope that at some stage I might understand parliamentary—and particularly Committee—procedure, and I hoped that this would be the occasion for me, but perhaps next time. 
 Before I come to new clause 30, I should like to say a little about where we are; it will take just a couple of paragraphs. I said during last Thursday's programme motion debate that the Government would table the remaining amendments to be dealt with in Committee last week, and that if we were unable to do so for any reason, they would be brought forward on Report. I confirm that we have no more amendments to table for Committee. The second tranche of clauses dealing with moral hazard are on the amendment paper, and we shall discuss them today. 
 We were also hoping to bring forward a clause on cash-equivalent transfer values to early leavers; however, it is a complex clause, and we have decided to table it on Report. In the intervening period we shall be testing the clause with outside experts. 
 New clause 30 replaces section 67 of the Pensions Act 1995. It will give schemes more flexibility to reshape their rules and cut back on their administrative costs. The current section 67 quite properly protects the rights that scheme members have already built up in a pension scheme by preventing rule changes that would have a detrimental effect on a member's accrued rights. However, the effect is that schemes can only apply rule changes to future rights, and as a result every rule has to remain in place exactly as it first existed, resulting in layer upon layer of rules, and ever-increasing complexity and cost. 
 The new clause will give occupational pension schemes the flexibility to rationalise and streamline their pension rules, and so will allow schemes to remove what has been described as a layer cake effect. However, there will be strict safeguards to ensure that scheme members are treated fairly, and that their interests are protected. As is the case now, whenever a rule change would have an adverse effect on a member's accrued rights the trustees will have to agree to it before it can go ahead. Schemes will still be able to 
 make a rule change with the consent of the individual member. The difference that the new provisions will make is that although schemes will not be able to reduce the value of a member's accrued rights they will be able to make changes to the nature of the rights. That will allow them to make the sort of sensible and perfectly reasonable simplifications and rationalisations that they have long complained that they are prevented from making under the present section 67 rules. Trustees will be able to replace one accrued right with another, provided that the overall actuarial value of the affected person's accrued rights is not reduced. In other words, the actuarial value of each member's accrued rights must be at least equal to what it was before the change was made. 
 Where trustees are proposing to make a change of that nature they will have to give the members advance notice of the change, tell them how it will affect them, and give them the opportunity to make representations about the proposal. The trustees will then make their decision in the light of any feedback that they receive from scheme members. Certain changes will be prohibited unless they are made with the express written consent of the member in question. Schemes will not be able to convert defined benefit rights into defined contribution rights. It would be going too far to allow a scheme to put a value on the rights that someone had built up in a defined benefit scheme and then just put an equivalent sum into a money purchase pot. We will also not allow schemes to make a change that would reduce the prevailing amount of a pension that is in payment. 
 Freeing up section 67 was one of the key simplification measures in Alan Pickering's report of July 2002, ''A simpler way to better pensions''. Schemes have long complained that the present section 67 is too restrictive and prevents them from making what are perfectly sensible and reasonable changes. In his report, Alan Pickering acknowledged how important it is that 
''employers keep their pension promise.'' 
However, he also said that 
''it should be easier for employers to re-shape pension arrangements in the light of contemporary economic or other circumstances.'' 
He continued: 
 ''A careful balance needs to be struck . . . between giving employers the right to amend pensions in the light of changed circumstances and their responsibility to keep their pension promise.'' 
The new clause strikes that balance. It follows Pickering's recommendation by allowing schemes to replace an accrued right with something else that is of at least ''equivalent value''. It then goes further in protecting members' interests by insisting that they are told about the effect of a change and by giving them the opportunity to make representations about it. It also prevents certain types of changes altogether, unless the scheme obtains the consent of the member. As I have said, there is no switching from defined benefit to money purchase and no reduction in the amount of pension in payment. 
 Alan Pickering was of course right when he said that employers should ''keep their pension promise'', but he was also right that the present section 67 rules are very restrictive. They prevent schemes from re-shaping their rules.

Steve Webb: The Minister may have been about to move on to this, but in case he was not, will he give the Committee an illustration of the typical rule change that is currently prohibited that would become enabled by this new clause? What sort of thing are we talking about?

Malcolm Wicks: For example, we are talking about where, for a section of someone's pension rights, the scheme—maybe reflecting the 1995 Act—says that that must be increased by 5 per cent. whereas a later layer of the cake might say something different. It is about trying to produce the actuarial equivalent for the member so that they do not lose out. For example, as an illustration, it is about saying, ''If we are going to rationalise so that in future the pension—all the different layers of the cake—can increase by x per cent. a year, the pension member should not lose out.'' This might not be an actuarially exact example but it is the kind of thing that is involved: one year at 5 per cent. might become, for example, 1.2 years as an actuarial equivalent in the future. It is about that, rather than the scheme at the moment having to organise itself so that different parts of the final salary scheme increase in different ways. Perhaps, as a result of company and pensions amalgamations, there have been different rules about dependants: children up to 16 or 18. The measure is designed to rationalise such rules in ways that produce no losers.

Steve Webb: One is always nervous about making it easier to make changes that are detrimental. I understand that the rights earned to date are not treated detrimentally, but does this make it easier for companies to make their ongoing pensions less generous?

Malcolm Wicks: No. This is not about making ongoing pensions less generous, but about rationalising scheme rules with the consent of the trustees so that, in future, members should get the actuarial equivalent of what they would have got anyway. If in future all the pension increased by the same x per cent., instead of one bit by z per cent., one bit by y per cent. and so on, buying more time for the member—actuarially, instead of one year under a certain chunk of the scheme, one would get 1.2 years—would enable the member to get the same pension in the future.
 This is not about reducing the costs to the scheme or about reducing the benefits to the member. It is about simplification, in line with Alan Pickering's recommendations. Another example might be changing payment frequency from every four weeks to monthly. We are trying to achieve a range of things of that kind. 
 Schemes have the option of obtaining members' consent for a rule change, but experience shows that in practice obtaining the consent of every individual member is rarely possible, particularly when a scheme has lost touch with some of its deferred members. For the very reasons that Alan Pickering outlined in his report, we think that pension schemes should have more flexibility to reshape their rules. The new clause will give them that flexibility, but at the same time will ensure that members' interests are properly protected.

Nigel Waterson: Good morning, Mr. Griffiths. We share the Minister's hope that we can finish the Committee stage today, although we have some weighty matters to debate.
 The Minister was right in setting out the background to new clause 30, which was foreshadowed by Pickering and by the Green Paper, and has been long awaited by industry. There was a howl of protest when the Bill was first published because these provisions were not in it. 
 If things can be simplified, that will be widely welcomed, although it is a bit difficult to see how the average layman, flicking through the dense print of the pages upon pages of new clause 30, would see it as a simplification measure. Let us hope that it is in practice. There is certainly a feeling among the people who have made initial comments to me that it may be adding more complexity. 
 However, the Minister is right about the layer cake effect that has been created with the passing of time, and about the absolute need to tackle this issue. Many people now consider it easier to close a scheme than to amend it. That cannot be sensible. It is surprising that it has taken so long for the provisions to appear, given that they have been flagged up so regularly and over such a long period. We now have relatively little time in Committee to go around getting expert comments on how the provisions might operate. I am sure that you are aware, Mr. Griffiths, of Bismarck's famous remark: those who like legislation, like those who like a sausage, should never see how it is made.

Malcolm Wicks: A great pensions reformer, Bismarck.

Nigel Waterson: He was a great pensions reformer, as the Minister reminds me.
 Let us consider more specific issues. Flexibility is important. If the long, complex provisions deliver that, we shall be very happy. The area is likely to remain one of considerable complexity and potential uncertainty for trustees. 
 One of the issues that has been flagged up with me, and on which we might table an amendment on Report, is whether it might be sensible to include a mechanism by which, rather as people can clear certain tax schemes in advance with the Inland Revenue, trustees will be able to seek advance clearance from the regulator if they are trying to make a change that they think is both in the interests of the members of their scheme and suitable under the new provisions. 
 Certain problems remain. What is and what is not a power to modify the scheme? The classic example would be a specific power to change the actuarial factors used to calculate benefits. The Minister touched on that. Proposed new section 67A(6)(a) moves on from section 67 in the earlier Act and does not use a definition of accrued rights that treats active members as if they had opted out. There could be additional problems in trying to sort out what accrued means in this context. Did the Government deliberately not use the definition in section 124 of the 1995 Act? 
 It is useful and sensible that the new provisions will make amendments voidable rather than void. Many of the issues that I am raising could be tabled as amendments, but because of the time scale I am making them as points so that if the Minister can deal with them before they become amendments on Report and have to be debated he will be able to save us a great deal of time. 
 Would it be sensible to incorporate into proposed new section 67I(2) something about reasonable excuse or taking reasonable steps? Again, I aim to protect trustees who might be trying to do their best for their scheme. Further, should the regulator be able to give a binding commitment that it will not exercise its powers under proposed new section 67G in relation to any particular modifications that have been submitted to it in advance? I have already mentioned the genuine doubts as to whether a modification is a regulated modification. In other words, in this case would the regulator be expected by Ministers to take a proactive role rather than simply reacting after the event to an inappropriate modification? 
 May I also raise a series of practical issues that have been put to me by people who are far more expert than I? In relation to those parts that replace rather than add to the original section 67, the Government seem to be ignoring advice that they have had not to use a single actuarial value because that does not address each part of the benefit. If there is to be a test that values each aspect of the benefit package, it needs to be written into the legislation. Perhaps the Minister can help me on that. 
 It is good that under proposed new section 67A(3), issues such as switches of a scheme from defined benefit to defined contributions are covered specifically for the first time. The question arises under proposed new section 67A(3)(a), why not both an actuarial equivalence requirement and a consent requirement? One might have thought that both would apply in relation to an internal transfer value within the scheme. However, it depends on what is being certified by the actuary. If it is a fixed amount, ignoring solvency issues, but the transfer value might be less if solvency issues were taken into account, that needs to be considered. A weakness in the current legislation is that internal scheme transfers are not covered. The provisions for internal and external transfers should be the same when initiated by the scheme sponsor and trustees, rather than the member. 
 Given the concern about employers avoiding section 75 debts, has the need for employers to make up any deficiency in funding that affects the transfer value been considered? We shall debate that issue further, later today. Anti-avoidance provisions need to be on a level playing field, especially as the spectre of criminality is raised in new clause 39. 
 Another question, about internal transfer, is: what protections will the new money purchase benefits have on winding up? It is far from universal that there are separate funds constituting separate schemes. 
 Turning to proposed new section 67A(3)(b), there is a question of whether employers will obtain consent. Will the measure cover partial wind-ups, which are not normally considered to be a modification? Will annuities have to be purchased under the provisions of the 2004 Finance Bill where previously a pension had been paid from the scheme investments envisaged? There is something odd about pensions in payment. Normally, there is no cash equivalent for a pension in payment, but there is for pension sharing purposes. As those provisions could include pension credit members, that could involve a variation of a pension sharing order. Has that been considered? 
 There is also something odd about the actuarial equivalence requirements in proposed new sections 67C and 67D. Under proposed new section 67C(2), the requirements apply only if the trustees decide that they should, but on what basis are they to make that decision? Under the current legislation, section 67(2) is regarded as a filter mechanism by which trustees determine whether the actuary should become involved in the certification process. That was referred to in the joint opinion on section 67 that was obtained by the actuarial profession. The basis for the trustee decision is less clear under the new wording. It may tie in with whether informed consent is needed, or, from a practical point of view, it may tie in with the opportunity to make representations. We then have the fall-back position of the actuarial equivalence statement in proposed new section 67D(3), which suggests that the normal route is to obtain the consent of members, but is not entirely clear whether that is the case. Consent would be consistent with giving effect to the information and consultation directive 2002. We believe that trustees and their advisers are entitled to better guidance on those issues. There is also an issue with the quality of the consent route taken. If the fall-back position is the actuarial equivalence requirement, how can a modification go through without that requirement being satisfied? 
 Those are some of the issues that members of the profession have flagged up. Another is the current cash equivalent test. I understand that there has been some legal debate on whether that is a benefit, and that that was one of many issues covered in the joint opinion from the actuaries. The question whether it is an entitlement was considered on arguments of private trust law, rather than employment law, and was ruled out. It is not certain on accrued rights, but that was also rejected. The conclusion was that, as with so many aspects of section 67, that view could not be expressed with confidence. The effect on the benefits that would 
 be available in the receiving scheme on transfer was not considered. However, some issues arise from the Coloroll cases—I am sure that the Minister is familiar with them, or is about to become so—that support the position taken in the joint opinion. 
 On the question of sex-equal transfer values, a transfer value is not paid. The reasoning is tied in with transfers in and out operating on a neutral basis, so that, all other things being equal, the member's accrued rights should not be changed if a transfer payment is made. Therefore, as regards benefits under the receiving scheme, the obligation is to ensure a sex-equal transfer value of benefits, but not a unisex transfer value. It was stated that in order to ensure that the sex equality requirements are met, the receiving scheme may need to consider whether it is possible to claim a higher transfer value from the transferring scheme if the transfer value is insufficient for that purpose. The cash equivalent is relevant as regards benefits. Furthermore, if a unisex requirement comes in under European law it is possible that, because that part of the objection would cease, a transfer value would be regarded as a benefit. Any distinction would then be about whether there was a permanent change, as opposed to a temporary easement or an adjustment built into the original terms. Nevertheless, the ultimate test is whether the benefits on a like-for-like transfer are reduced as a result. 
 Those are all important issues, as far as I can tell. They raise significant concerns about the way in which the new clause will operate in practice and how the regulator is to use its powers in that area. I appreciate that it has not been possible to cast these points as amendments, because of the lateness of the new clause, and that it has equally not been possible for the Minister to flag up detailed answers to the questions. I would be more than happy if he wanted to write to me and to other members of the Committee on the detailed issues. However, on some of the big issues, he may be able to explain why some of the concerns may be overstated.

Steve Webb: I cannot begin to match the erudition of the hon. Gentleman on such matters, but I want to make a few humble contributions, if I may.
 I wanted to raise three issues with the Minister. The first, which I am flagging up early to give him the chance to become inspired, is the issue of actuarial equivalence. As I understand it, if something happened that would otherwise diminish the rights accrued to date, one would be given a sum of money that was the actuarial equivalent of the amount accrued so far. The new rules would then apply, but one would have had one's rights effectively replaced by something of equivalent value. That seems reasonable in principle, looking backwards. 
 However, is actuarial equivalence definitive or is it a matter of judgment? Can one always say that a sum of money is of equivalent value to any given accumulated pension right to date or is it a guess? Is it an estimate, subject to judgment and a range of uncertainty? If one were given a certain sum of money in lieu of previously 
 accrued pension rights, could it turn out that the sum was not equivalent? It may have looked as though it would be equivalent according to the best assumptions available at the time, but it may not be because interest rates were higher or because the person involved lived for a longer or shorter period. If that is the case, will there be any redress? In other words, what happens if I am a member of a scheme and have accrued rights to date, but the scheme comes along and says that it wants to change something that would otherwise be detrimental to my accrued rights but that it will give me some money instead, and it turns out five years later that the money that I was given—although I was given it in good faith, as it appeared to be of equal value at the time—is not of equal value? Can I then go back and tell the scheme that it made my pension rights worse, that the money that I was given did not cover my rights in full and that I want the difference or do I just have to lump it, as we say in the trade? Can it be revisited, or is it a once-and-for-all definitive matter? 
 My second concern is about whether scheme members will understand what on earth is going on. I presume that the trustees will write to the scheme members, saying that they hope to make a fairly technical change to the rules of the scheme. My hunch is that the vast majority of scheme members will not have the foggiest idea what that means. The Minister will know that when his Department does surveys on pensions and company pensions, scheme members have trouble knowing whether they are in a final salary scheme, a money purchase scheme or something else. They have trouble getting that far, and also in knowing whether they have contracted out or not. The idea that they would be able to make an intelligent assessment of a technical rule change seems entirely incredible. 
 The question remains, does that matter? Scheme members will receive the letter, which will state, ''We are going to change such-and-such, under this rule, paragraph so-and-so,'' and they will say, ''Wot?'' Does it matter that they will not understand? Presumably, it matters a bit or we would not have all this stuff about notification, consent and so on. It must matter to some extent. I do not suppose that plain English is ever a requirement in such things, but can we be confident that scheme members will have the first idea what they are being written to about, or is this just another consultation on the nod? Will trustees say, ''The law said we had to write to you, so we did. We know that 95 per cent. of you didn't understand a word of what we said, but, what the heck, we're going ahead anyway''? I have a feeling that that is how it will be in practice, because no one will understand the issues. That makes me slightly nervous. 
 My last point is the substantive one about which I intervened on the Minister: will the provisions be used as an excuse for making cuts? The Minister said not, but I want to pursue him a little about that. I accept that they will not be used as an excuse for making cuts to rights that have already been accrued, but the Minister used the slightly ominous phrase ''new economic realities'', which makes me very nervous given that we are talking about changing people's pension rights. 
 I accept that there will be trivial changes, and it would be absurd if the Pensions Act prevented us from changing the payment frequency from four-weekly to monthly. I do not have a problem with trivial administrative changes in areas where the law has become so rigid that it is absurd. However, I am still worried. 
 When I intervened on the Minister, he gave two answers: one was perhaps inspired, while the other was perhaps more off the top of his head. The one off the top of his head was about future indexation, which is far from trivial. He seemed to be saying that future indexation might, for example, be lower than scheme indexation to date. Those are the new economic realities: lower inflation, lower indexation rights. That does not damage people's accrued rights, because people who, for example, get one year at 5 per cent. might then get one and a half years at 2.5 per cent, which would be equivalent, so that would be fine. 
 I am not sure, however, that companies could, at present, worsen someone's future pension rights. Would section 67 prevent them from doing so? If the revised version of section 67 allows them to do so, are we making it much easier for firms to cut future—I stress the word ''future''—pension rights because of the new economic realities, to use the Minister's words? He clearly said no when I intervened on him, but I want to give him the opportunity to do so again, because I am not sure that he is right. I am not sure that the new clause does not give companies the power to change scheme rules and to put the past right. The new rules for future accruals could be less generous and, I assume, go through without the consent of all members. I am very nervous about that, and the Minister has not quite reassured me that we are not making such things easier. 
 So, there are three key questions. First, is actuarial equivalence definitive? If not, and if someone gets a bad deal, can they go back to it? Secondly, will employees understand any of that stuff anyway, and does it matter? Finally, will the provisions make future cuts easier? Those are my concerns.

Malcolm Wicks: I start by acknowledging the generous offer from the hon. Member for Eastbourne (Mr. Waterson), who said that the timing of the changes before us meant, among other things, that the Opposition had not had time to table amendments. He added—this, I thought, was the generous bit—that the Government had not had time fully to take on board the nature of the non-existent amendments. Given the detailed nature of the brief, we will obviously consider the issues before Report and write to hon. Members about them. However, I will do my best to deal with some of the points raised by the hon. Members for Eastbourne and for Northavon (Mr. Webb).
 The hon. Member for Eastbourne made the jest—it was perfectly reasonable, and we rather anticipated it—that if the provisions are a matter of simplification, do we really need 10 new sections? The answer is that simplification, in this instance at least, is not about cutting the number of words in the legislation, but 
 about making it simpler for schemes to operate. As we have heard, the new sections will give them the flexibility to simplify their rules. It is the sort of simplification that pension schemes have been asking for, and we must take that into account. It is also along the lines recommended by Alan Pickering. 
 If there are now 10 new sections, instead of just one, that is because they incorporate the necessary safeguards for scheme members. We have freed up the position for pension schemes but ensured that it has not been done at the expense of scheme members. To precis what I am saying, it is a complex task to achieve simplicity. 
 We were teased again as to why it had taken us so long to produce the new clause. It is a familiar answer: it is an important and complex matter, and we have had to think hard about it and take advice. I am sorry that it should be somewhat late. 
 Some questions were raised about proposed new section 67G, which provides the pension regulator with the power to order that a modification is void. That may touch on some of the concerns expressed by the hon. Member for Northavon about the regulator's role. If a scheme has not properly complied with the new section 67 requirement, the regulator will be able to order that the affected members are returned to the position that they would have been in had the modification not been made. That is a further measure to protect members' pension rights. The regulator can also require that the trustees take certain steps for the purpose of giving effect to the order, or declaring that anything done by the trustees before the order was made did not breach the scheme's rules. 
 The hon. Member for Eastbourne asked about advance clearance. Whether scheme rules should be changed is rightly a matter for trustees, depending on the circumstances of their scheme and its members. If the trustees are in doubt as to whether a change should be made, they can seek members' views to help them in their consideration. It is not a matter for the regulator, but he will issue a guidance note. 
 Various questions were asked about the actuarial value of members' accrued rights, and how they will be calculated. The actuarial evaluation of members' accrued pension rights in defined benefit pension schemes has long been a standing feature of pensions legislation. For example, when a member wishes to transfer his rights from one scheme to another, or when members are transferred in bulk following corporate mergers, the rights accrued need to be valued. In conjunction with the actuarial profession, we plan to ensure that an appropriate methodology is put in place, through regulation and actuarial guidance, to ensure that members' accrued rights are appropriately valued at the point of change. We will be building on the well established actuarial certification process for bulk transfers. 
 Nothing in the legislation will prevent trustees from giving schemes actuarial equivalence if members' consent has been given, but such equivalence must be given if no such consent is obtained. As I implied, the regulator will issue guidance about that. 
 The issue of gender was raised. Proposed new section 67C(8) provides that the actuarial value of the rights of each affected member immediately following modification must be equal to the value of the rights before the change. Regulations, together with professional guidance to actuaries, will ensure that each affected member's accrued rights under the original and the revised scheme rules are properly and fairly valued for the purpose of meeting the statutory requirement. The calculation of the value of each member's accrued rights will properly take into account all the relevant factors, and that will obviously include the member's gender. I hope that that answer is satisfactory. 
 The Welfare Reform and Pensions Act 1999 introduced pension sharing on divorce. Under the provisions of the Bill, it is possible for the value of pension rights held by either member of a married couple to be shared on divorce. Section 67 of the 1995 Act restricts the power conferred on occupational pension schemes to make changes that would or might affect a person's entitlement. However, it does not apply to section 29(1)(a) of the Welfare Reform and Pensions Act, which provides for the creation of the pension debit when a pension sharing order has been made. 
 In order to comply with the pension sharing order, the person responsible for the pension arrangements has to reduce the value of the member's accrued shareholder rights by the percentage ordered by the court. That reduction would affect the member's rights, and if the existing section 67 were to apply it would not be possible to implement a pension sharing order. The existing exemption will, in proposed new section 67(3), be carried over into the clause 67 provisions, thereby enabling pension sharing to continue. 
 The line of questioning by the hon. Member for Northavon was about actuarial equivalence. At the risk of repeating myself—I have not had time to paraphrase my remarks—actuarial equivalence is a well established process used in various areas of pension work. For instance, it is used to set the amount of contributions required from the employer. There is a need to make assumptions about the future to work out how much income from contributions a scheme needs. It is also used to change one set of benefits into another. It changes the shape of the benefits, but not the overall value; for example, individuals may want to transfer their accrued rights from one scheme to another when they move jobs. The first stage will be for the scheme to calculate the existing accrued rights for each scheme member using actuarial assumptions. The actuary will then work out the value of each member's accrued rights. 
 In broad terms, that calculation is done by working out how much pension will be paid to individuals each year up to the point where it is assumed that they will die, and how much scheme benefit will be paid to their surviving spouse until it is assumed that they too will die. To produce those figures, the actuary will have to use various assumptions about the future; for example, 
 he will have to make assumptions about mortality to decide how long the pension will be paid and about inflation to decided how much of an increase will be awarded in each of those years, and he must decide how much money has to be invested to produce a stream of income. To do that, the actuary has to use an assumption about future investment returns. That latter figure is the value of the member's accrued pension rights before the scheme amendment. The actuary will then repeat that calculation to work out the value of the member's accrued pension rights after the proposed scheme amendment. The two actuarial values will be compared and, if necessary, an adjustment made to the member's accrued rights to ensure that the value after amendment is no less than before.

Steve Webb: I am grateful to the Minister for that response. He confirmed my point when he talked about the different assumptions that must be fed into that process. Nobody doubts that those assumptions are made in good faith with the best guess at the time, but we all know how useless actuaries are. The only thing that they want to know in life is how long people will live, and they keep getting that wrong. Presumably, they will get this wrong too. The new clause is therefore allowing changes the resulting outturn of which may be right on average; in some cases however we will be allowing people's accrued rights to be damaged.

Malcolm Wicks: I am just about to deal with the hon. Gentleman's points, following his vicious attack on a great profession. In case I speak to actuaries in the future, I want my comments recorded.
 The hon. Gentleman seeks an impossible guarantee, which would be like guaranteeing that all members of a scheme will live until they receive their annuity or that those who are married will stay married. With any set of pension scheme benefits, the circumstances of life and death will ensure that some individuals end up better off than others. However, I assure the hon. Gentleman that the objective of actuarial conversion is to ensure that every scheme member retains an equivalent value of benefits at conversion and, as far as the human predictive ability can provide, into the future. 
 The hon. Gentleman is concerned about possible losers, and even winners. As he acknowledges, any long-term gains or losses will depend on the accuracy of the actuaries' long-term forecast and the future circumstances of the individual member—age at retirement, age at death, and so on. This is a matter of informed judgment, and the actuarial profession will recognise that it cannot be an exact science. 
 I can confirm that, when a change is made without member consent, the actuarial value of each member's rights at the time of the change will be maintained. No member will suffer a reduction in the actuarial value of his or her rights, as I have been at pains to spell out. 
 One of the issues raised by the hon. Gentleman's concerns is that, although we need to be able to seek the views of members, requiring every member's consent would be impossible. Schemes lose touch with 
 some members, and some would not reply. Of course, I recognise that many members of pension schemes feel relatively ignorant about such matters, and that raises the issue of the important role of trustees. By definition, trustees are there to ensure that members are protected. Trustees must act in the best interests of scheme beneficiaries, so far as is permitted by their trust deed, the scheme rules and general law. That duty refers to the scheme's beneficiaries as a whole. 
 When making a decision to modify scheme rules, trustees have to consider the implications of the decision on all beneficiaries and weigh up the pros and cons to decide whether their decision is in the overall interest of beneficiaries. Trustees are also required not to exercise a power to modify scheme rules for an improper purpose. Trustees will be required to tell scheme members about the effect of the change on them as individuals. The regulator will give guidance to trustees on that point. A member could appeal against an earlier rule change on the grounds that it was based on wrong assumptions or was carried out on the wrong basis. 
 Alan Pickering's review of occupational pension regulations, which prompted the proposed changes, suggested that section 67 is a contributory factor in the move by some employers from defined benefit to defined contribution pensions arrangements. He therefore recommended that schemes be allowed to make the rule changes that we have discussed. It has been a theme of our discussions that no one wants layer upon layer of regulations if the result is that more employers decide to move out of final salary schemes. That is one of the factors that we bore in mind when we listened hard not only to Alan Pickering, to whom we are obviously grateful for his report, but to many other people in the industry who were saying that the move towards simplification was important. We have taken that seriously at a time when, in other sections of our Bill, we are imposing new burdens, such as the pension protection fund, on schemes. 
 I repeat that, although no absolute guarantees can be made about every last pound of every last member, the whole basis of actuarial equivalence is to make sure that we can achieve simplicity, with all the benefits that that brings, at no expense to the member. The proposals are a fair package, not least to members. 
 Question put and agreed to. 
 Clause read a Second time, and added to the Bill.

New Clause 31 - Publishing reports

'(1) The Board may, if it considers it appropriate to do so in any particular case, publish a report of the exercise of, or any matter arising out of or connected with the exercise of, any of its functions in that case. 
 (2) The publication of a report under subsection (1) may be in such form and manner as the Board considers appropriate.
 (3) For the purposes of the law of defamation, the publication of any matter by the Board is privileged unless the publication is shown to be made with malice.'.—[Mr. Pond.] 
 Brought up, and read the First time.

Chris Pond: I beg to move, That the clause be read a Second time.
 Good morning, Mr. Griffiths. I am not sure that the new clause need detain the Committee so long as to push us through to Thursday, but we shall see. 
 The new clause will give the pension protection fund board the power to publish reports on the exercise of its functions. It is designed to allow the board to publish a variety of reports, which could, for example, contain details of consultation exercises, statistics concerning the PPF's functions or recommendations of good practice for schemes that become involved with the PPF. 
 One may ask why on earth the Bill needs to give a body that it establishes, the power to publish reports. [Interruption.] I hear the hon. Member for Northavon saying, ''indeed''. It is therefore important to make it clear that the new clause also specifies that, unless the reports are malicious, which of course we would never expect them to be, there will be exemption from action on the grounds of defamation. That will allow the PPF the freedom to perform its role independently. 
 The power to publish reports is not unique. The regulator has a similar power in clause 63, which allows it to publish reports regarding the consideration it gives to the exercise of its functions, including the results of that consideration. Clause 63 replicates Section 103 of the Pensions Act 1995, which gives the Occupational Pensions Regulatory Authority the same power. OPRA's power was originally absolute. Even in cases where malice might have been considered, it was protected against any action. The Opposition agreed with us that it was perhaps necessary to limit those powers. 
 We believe that the PPF's power to publish reports will help to ensure that the organisation is transparent, by allowing it to disclose details of its decisions and its decision-making processes, where appropriate. Furthermore, we believe that the power will enable the board to make best use of reports—for example, on its website—to keep individuals and third parties informed of its involvement with a scheme. 
 We envisage that some reports may contain information that is restricted information for the purposes of the information clauses in chapter 5 of part 2, where the board considers that to be necessary, in the light of the nature of the report and the purpose of publishing it. That will require a small associated amendment in clause 159, which we will table later.

Nigel Waterson: I may be quite wrong, but my vague recollection is that the new clause is a response to an amendment that we moved, and argued for, some time ago in the Committee. I seem to remember having a long argument about the differences between absolute and qualified privilege. As the Committee knows, I am far from being an egomaniac in such matters. However, having tabled hundreds of amendments and
 new clauses, I think that it would be nice if we got a modicum of credit on the sole occasion on which the Government have accepted our amendment.
 I argued strongly that absolute privilege was not appropriate for the publication of such reports, whether by the regulator, the board, the ombudsman or whomsoever. I said that there was no room for absolute privilege and that we should therefore consider qualified privilege, which is mentioned in subsection (3). I should like to think that history would record that one small corner of the Bill is due to me and that future generations of Watersons will be able to point to this result with pride.

Chris Pond: I wonder whether, in the generous spirit of the Committee, I might help history along and acknowledge the important role that the hon. Gentleman and his colleagues have played in highlighting the issue, which we have willingly taken on board through the new clause.

Nigel Waterson: I am grateful for that generous intervention. Now that the part that we have played in such an historic moment is firmly on the record, I am happy to sit down.
 Question put and agreed to. 
 Clause read a Second time, and added to the Bill.

New Clause 32 - No indemnification for fines or civil penalties

'(1) No amount may be paid out of the assets of an occupational or personal pension scheme for the purpose of reimbursing, or providing for the reimbursement of, any trustee or manager of the scheme in respect of— 
 (a) a fine imposed by way of penalty for an offence of which he is convicted, or 
 (b) a penalty which he is required to pay under or by virtue of section 10 of the Pensions Act 1995 (c. 26) or section 168(4) of the Pension Schemes Act 1993 (c. 48) (civil penalties). 
 (2) For the purposes of subsection (1), providing for the reimbursement of a trustee or manager in respect of a fine or penalty includes (among other things) providing for the payment of premiums in respect of a policy of insurance where the risk is or includes the imposition of such a fine or the requirement to pay such a penalty. 
 (3) Where any amount is paid out of the assets of an occupational or personal pension scheme in contravention of this section, section 10 of the Pensions Act 1995 (c. 26) (civil penalties) applies to any trustee or manager who fails to take all reasonable steps to secure compliance. 
 (4) Where a trustee or manager of an occupational or personal pension scheme— 
 (a) is reimbursed, out of the assets of the scheme or in consequence of provision for his reimbursement made out of those assets, in respect of any of the matters mentioned in subsection (1)(a) or (b), and 
 (b) knows, or has reasonable grounds to believe, that he has been reimbursed as mentioned in paragraph (a), 
 then, unless he has taken all reasonable steps to secure that he is not so reimbursed, he is guilty of an offence. 
 (5) A person guilty of an offence under subsection (4) is liable— 
 (a) on summary conviction, to a fine not exceeding the statutory maximum, and
 (b) on conviction on indictment, to imprisonment for a term not exceeding two years, or a fine, or both.'.—[Malcolm Wicks.] 
 Brought up, read the First and Second time, and added to the Bill.

New Clause 33 - Increase in age at which short service benefit must be payable

'(1) In section 71 of the Pension Schemes Act 1993 (c. 48) (basic principle as to short service benefit), for subsection (3) substitute— 
 ''(3) Subject to subsection (4), short service benefit must be made payable as from an age which is no greater than— 
 (a) the age of 65, or 
 (b) if in the member's case normal pension age is greater than 65, normal pension age.'' 
 (2) In section 72 of that Act (no discrimination between short service and long service beneficiaries), at the end add— 
 ''(4) This section is subject to subsections (3) and (6) of section 71 (age at which short service benefit is to be payable).''.'.—[Malcolm Wicks.] 
 Brought up, read the First and Second time, and added to the Bill.

New Clause 34 - Consultation by employers: occupational pension schemes

'(1) Regulations may require any prescribed person who is the employer in relation to an occupational pension scheme and who— 
 (a) proposes to make a prescribed decision in relation to the scheme, or 
 (b) has been notified by the trustees or managers of the scheme that they propose to make a prescribed decision in relation to the scheme, 
 to consult prescribed persons in the prescribed manner before the decision is made. 
 (2) Regulations may require the trustees or managers of an occupational pension scheme not to make a prescribed decision in relation to the scheme unless— 
 (a) they have notified the employer of the proposed decision, and 
 (b) they are satisfied that the employer has undertaken any consultation required by virtue of subsection (1). 
 (3) The validity of any decision made in relation to an occupational pension scheme is not affected by any failure to comply with regulations under this section. 
 (4) Section (Further provisions about regulations relating to consultation by employers) contains further provisions about regulations under this section.'.—[Malcolm Wicks.] 
 Brought up, read the First and Second time, and added to the Bill.

New Clause 35 - Consultation by employers: personal pension schemes

'(1) Regulations may require any prescribed person who— 
 (a) is the employer in relation to a personal pension scheme where direct payment arrangements exist in respect of one or more members of the scheme who are his employees, and
 (b) proposes to make a prescribed decision affecting the application of the direct payment arrangements in relation to those employees, 
 to consult prescribed persons in the prescribed manner before he makes the decision. 
 (2) The validity of any decision prescribed for the purposes of subsection (1)(b) is not affected by any failure to comply with regulations under this section. 
 (3) Section (Further provisions about regulations relating to consultation by employers) contains further provisions about regulations under this section.'.—[Malcolm Wicks.] 
 Brought up, read the First and Second time, and added to the Bill.

New Clause 36 - Further provisions about regulations relating to consultation by employers

'(1) In this section ''consultation regulations'' means regulations under section (Consultation by employers: occupational pension schemes) or (Consultation by employers: personal pension schemes). 
 (2) Consultation regulations may— 
 (a) make provision about the time to be allowed for consultation; 
 (b) prescribe the information which must be provided to the persons who are required to be consulted; 
 (c) confer a discretion on the employer in prescribed cases as to the persons who are to be consulted; 
 (d) make provision about the representatives the employees may have for the purposes of the regulations and the methods by which those representatives are to be selected; 
 (e) require or authorise the holding of ballots; 
 (f) amend, apply with or without modifications, or make provision similar to, any provision of the Employment Rights Act 1996 (c. 18) (including, in particular, Parts 5, 10 and 13), the Employment Tribunals Act 1996 (c. 17) or the Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52); 
 (g) enable any requirement for consultation imposed by the regulations to be waived or relaxed by order of the Regulator; 
 (h) require the employer to communicate to the trustees and managers of the scheme any representations received by the employer in response to any consultation required by the regulations. 
 (3) Persons on whom obligations are imposed by consultation regulations, either as employers or as the trustees or managers of occupational pension schemes, must, if so required by the Regulator, provide information to the Regulator about the action taken by them for the purpose of complying with the regulations. 
 (4) Consultation regulations may make provision as to— 
 (a) the information to be provided under subsection (3); 
 (b) the form and manner in which the information is to be provided; 
 (c) the period within which the information is to be provided. 
 (5) Nothing in consultation regulations is to be regarded as affecting any duty to consult arising otherwise than under the regulations.'.—[Malcolm Wicks.] 
 Brought up, read the First and Second time, and added to the Bill.

New Clause 38 - Independent trustees

'(1) Part 1 of the Pensions Act 1995 (occupational pension schemes) is amended as follows. 
 (2) In section 22 (circumstances in which provisions relating to independent trustees apply)—
 (a) in subsection (1)(b) omit ''or'' at the end of sub-paragraph (i) and after that sub-paragraph insert— 
 ''(ia) the interim receiver of the property of a person who is the employer in relation to the scheme, or'', 
 (b) in subsection (2), after ''a scheme'' insert ''by virtue of subsection (1)'', 
 (c) after subsection (2) insert— 
 ''(2A) To the extent that it does not already apply by virtue of subsection (1), this section also applies in relation to a trust scheme— 
 (a) at any time during an assessment period (within the meaning of section 104 of the Pensions Act 2004) in relation to the scheme, and 
 (b) at any time, not within paragraph (a), when the scheme is authorised under section [schemes required to wind up but unable to buy out liabilities] of that Act (schemes required to wind up but unable to buy out liabilities) to continue as a closed scheme.'', and 
 (d) after subsection (2A) (inserted by paragraph (c) above) insert— 
 ''(2B) The responsible person must, as soon as reasonably practicable, give notice of an event within subsection (2C) to— 
 (a) the Authority, 
 (b) the Board of the Pension Protection Fund, and 
 (c) the trustees of the scheme. 
 (2C) The events are— 
 (a) the practitioner beginning to act as mentioned in subsection (1)(a), if immediately before he does so this section does not apply in relation to the scheme; 
 (b) the practitioner ceasing to so act, if immediately after he does so this section does not apply in relation to the scheme; 
 (c) the official receiver beginning to act in a capacity mentioned in subsection (1)(b)(i), (ia) or (ii), if immediately before he does so this section does not apply in relation to the scheme; 
 (d) the official receiver ceasing to act in such a capacity, if immediately after he does so this section does not apply in relation to the scheme. 
 (2D) For the purposes of subsection (2B) ''the responsible person'' means— 
 (a) in the case of an event within subsection (2C)(a) or (b) the practitioner, and 
 (b) in the case of an event within subsection (2C)(c) or (d), the official receiver. 
 (2E) Regulations may require prescribed persons in prescribed circumstances where this section begins or ceases to apply in relation to a trust scheme by virtue of subsection (2A) to give a notice to that effect to— 
 (a) the Authority, 
 (b) the Board of the Pension Protection Fund, and 
 (c) the trustees of the scheme. 
 (2F) A notice under subsection (2B), or regulations under subsection (2E), must be in writing and contain such information as may be prescribed.'' 
 (3) For sections 23 and 24 (appointment of independent trustees) substitute— 
 23 Power to appoint independent trustees 
 (1) While section 22 applies in relation to a trust scheme, the Authority may by order appoint as a trustee of the scheme a person who— 
 (a) is an independent person in relation to the scheme, and 
 (b) is registered in the register maintained by the Authority in accordance with regulations under subsection (4). 
 (2) In relation to a particular trust scheme, no more than one trustee may at any time be an independent trustee appointed under subsection (1). 
 (3) For the purposes of this section a person is independent in relation to a trust scheme only if— 
 (a) he has no interest in the assets of the employer or of the scheme otherwise than as trustee of the scheme, 
 (b) he is neither connected with, nor an associate of—
 (i) the employer, 
 (ii) any person for the time being acting as an insolvency practitioner in relation to the employer, or 
 (iii) the official receiver acting in any of the capacities mentioned in section 22(1)(b) in relation to the employer, and 
 (c) he satisfies any prescribed requirements; 
 and any reference in this Part to an independent trustee is to be construed accordingly. 
 (4) Regulations must provide for the Authority to compile and maintain a register of persons who satisfy the prescribed conditions for registration. 
 (5) Regulations under subsection (4) may provide— 
 (a) for copies of the register or of extracts from it to be provided to prescribed persons in prescribed circumstances; 
 (b) for the inspection of the register by prescribed persons in prescribed circumstances. 
 (6) The circumstances which may be prescribed under subsection (5)(a) or (b) include the payment by the person to whom the copy is to be provided, or by whom the register is to be inspected, of such reasonable fee as may be determined by the Regulator. 
 (7) This section is without prejudice to the powers conferred by section 7.'' 
 (4) In section 25 (appointment and powers of independent trustees: further provision)— 
 (a) for subsection (4)(a) substitute— 
 ''(a) he must as soon as reasonably practicable give written notice of that fact to the Authority, and'', 
 (b) after subsection (5) insert— 
 ''(5A) Section 10 applies to any person who, without reasonable excuse, fails to comply with subsection (4)(a).'', and 
 (c) for subsection (6) substitute— 
 ''(6) An order under section 23(1) may provide for any fees and expenses of the trustee appointed under the order to be paid— 
 (a) by the employer, 
 (b) out of the resources of the scheme, or 
 (c) partly by the employer and partly out of those resources. 
 (7) Such an order may also provide that an amount equal to the amount (if any) paid out of the resources of the scheme by virtue of subsection (6)(b) or (c) is to be treated for all purposes as a debt due from the employer to the trustees of the scheme. 
 (8) Where, by virtue of subsection (6)(b) or (c), an order makes provision for any fees or expenses of the trustee appointed under the order to be paid out of the resources of the scheme, the trustee is entitled to be so paid in priority to all other claims falling to be met out of the scheme's resources.'''.—[Malcolm Wicks.] 
 Brought up, read the First and Second time, and added to the Bill.

New Clause 39 - Contribution notices where avoidance of employer debt

'(1) This section applies in relation to an occupational pension scheme other than— 
 (a) a money purchase scheme, or 
 (b) a prescribed scheme or a scheme of a prescribed description. 
 (2) The Regulator may issue a notice to a person stating that the person is under a liability to pay the sum specified in the notice (a ''contribution notice'')— 
 (a) to the trustees or managers of the scheme, or 
 (b) where the Board of the Pension Protection Fund has assumed responsibility for the scheme under Chapter 3 of Part 2 (pension protection), to the Board.
 (3) The Regulator may issue a contribution notice to a person only if— 
 (a) the Regulator is of the opinion that the person was a party to an act or a deliberate failure to act which falls within subsection (4), 
 (b) the person was at any time in the relevant period— 
 (i) the employer in relation to the scheme, or 
 (ii) a person connected with, or an associate of, the employer, and 
 (c) the Regulator is of the opinion that it is reasonable to impose liability on the person to pay the sum specified in the notice. 
 (4) An act or a failure to act falls within this subsection if— 
 (a) the Regulator is of the opinion that the main purpose or one of the main purposes of the act or failure was— 
 (i) to prevent the recovery of the whole or any part of a debt which was, or might become, due from the employer in relation to the scheme under section 75 of the Pensions Act 1995 (c.26) (deficiencies in the scheme assets), or 
 (ii) otherwise than in good faith, to prevent such a debt becoming due or to reduce the amount of such a debt which was or would otherwise become due, and 
 (b) it is an act which occurred, or a failure to act which first occurred, on or after 11th June 2003. 
 (5) For the purposes of subsection (3)— 
 (a) the parties to an act or a deliberate failure include those persons who knowingly assist in the act or failure, and 
 (b) ''the relevant period'' means the period which— 
 (i) begins with the time when the act falling within subsection (4) occurs or the failure to act falling within that subsection first occurs, and 
 (ii) ends with the issuing of the contribution notice. 
 (6) The Regulator, when deciding for the purposes of subsection (3)(c) whether it is reasonable to impose liability on a particular person to pay the sum specified in the notice, must have regard to such matters as the Regulator considers relevant including, where relevant, the following matters— 
 (a) the degree of involvement of the person in the act or failure to act which falls within subsection (4), 
 (b) the relationship which the person has or has had with the employer (including, where the employer is a company, whether the person has or has had control of the employer within the meaning of section 435(10) of the Insolvency Act 1986 (c. 45)), 
 (c) any connection or involvement which the person has or has had with the scheme, 
 (d) if the act or failure to act was a notifiable event for the purposes of section 44 (duty to notify the Regulator of certain events), any failure by the person to comply with any obligation imposed on the person by subsection (1) of that section to give the Regulator notice of the event, 
 (e) the financial circumstances of the person, and 
 (f) such other matters as may be prescribed. 
 (7) In subsection (6)(b) ''company'' has the meaning given by section 735(1) of the Companies Act 1985 (c. 6). 
 (8) For the purposes of this section references to a debt due under section 75 of the Pensions Act 1995 (c. 26) include a contingent debt under that section. 
 (9) Accordingly, in the case of such a contingent debt, the reference in subsection (4)(a)(ii) to preventing a debt becoming due is to be read as including a reference to preventing the occurrence of any of the events specified in section 75(4B)(a) or (b) of that Act upon which the debt is contingent. 
 (10) For the purposes of this section— 
 (a) section 249 of the Insolvency Act 1986 (c. 45) (connected persons) applies as it applies for the purposes of any provision of the first Group of Parts of that Act, 
 (b) section 435 of that Act (associated persons) applies as it applies for the purposes of that Act, and
 (c) section 74 of the Bankruptcy (Scotland) Act 1985 (c. 66) (associated persons) applies as it applies for the purposes of that Act.'.—[Malcolm Wicks.] 
 Brought up, and read the First time.

Malcolm Wicks: I beg to move, That the clause be read a Second time.

Win Griffiths: With this it will be convenient to discuss the following: Government new clause 40—The sum specified in a section [Contribution notices where avoidance of employer debt] contribution notice.
 Government new clause 41—Content and effect of a section [Contribution notices where avoidance of employer debt] contribution notice. 
 Government new clause 42—Section [Contribution notices where avoidance of employer debt] contribution notice: relationship with employer debt.

Malcolm Wicks: We now come to two separate but important clusters of new clauses. I hope that they will be supported by the Committee, because they are a crucial component of what we are trying to do. They address the issue of so-called moral hazard in relation to the new pension protection. I am afraid, Mr. Griffiths, that I may need to spend a while on such a complex matter.
 Mitigating the risks of moral hazard is one of the biggest challenges that we face in introducing the PPF. It is a challenge that we must address if we are to safeguard the integrity and sustainability of the fund and avoid placing an unfair burden on responsible levy payers. Indeed, I stress that that is very much in the interests of the vast majority of decent employers when it comes to occupational pensions. 
 A number of forms of moral hazard need to be addressed. The Bill already includes measures designed to protect the PPF against actions taken by schemes to increase the benefits that could be payable by the fund in the form of the admissible rules and the ''recent discretionary increases'' provisions of schedule 7. Imposing a cap on the compensation payable to those under normal pension age also avoids any potential perverse incentives for key decision makers to allow companies to go into insolvency. Furthermore, clauses 115 and 116 include provisions designed to guard against manipulation of schemes to gain eligibility for the PPF. 
 The new clauses are designed to protect the PPF and scheme members from another moral hazard—the risk posed by unscrupulous employers who might seek to use company structures and business transactions as a cover for side-stepping their pension obligations in the form of the debt due from the employer under section 75 of the Pensions Act 1995. 
 The section 75 debt would fall on the person who counts as the employer for the purposes of the pension scheme and section 75, particularly when an employer was part of a company group. There are a number of ways in which such a group could ensure that, before the scheme was wound up or the sponsoring employer became insolvent and a section 75 debt was triggered, the company that was the legal employer was put in a position in which it could not afford to pay the debt. 
 Even if the rest of the company group was fully solvent, the trustees could not recover the debt from any other companies in the group, and the scheme members would be left in what might be a very badly funded scheme. The risk largely relates to schemes in which a number of companies, often with a group structure, participate and pool their liabilities together in a multi-employer scheme, but it could also affect single employer schemes. 
 The actions taken by company groups might include withdrawing funding for the employer company, selling off its assets, paying a large dividend to strip out any assets in the company or transferring the employees to another company such as a service company, which would then become the employer and which would never have traded or have had any assets to speak of. 
 Such actions could occur just before the winding up of the scheme or the insolvency of the sponsoring employer, or well in advance, with a view to disguising the purpose of those actions. Alternatively, with or without the collusion of the scheme trustees, the employer could take action artificially to increase the assets of the scheme at the time at which the debt was to be calculated, so that the debt to be paid was lower. That could include persuading the trustees to buy an asset and place a higher value on it, for the purposes of the debt calculation, than it was really worth, such as a piece of land with promised development opportunities that turned out not to exist. Such an action could also include using an asset such as a derivative, designed to increase massively in value in the short term and later to fall. 
 We want to do as much as possible to encourage employers to provide good-quality pensions for their employees and we welcome the ongoing contribution to the pensions partnership that employers in this country make, but we know from the experience of the Pension Benefit Guaranty Corporation in the United States and, regrettably, from cases that have come to light in this country that we cannot assume that all employers take their pension promise to their employees seriously. 
 We are not naive to the fact that the advent of the PPF could be seen to provide an even greater incentive for unscrupulous employers to dump their pension liabilities, under the assumption that the PPF would pick up the tab. 
 New clauses 39 to 42 will therefore give the pensions regulator the power to require that a contribution should be made to a pension scheme when there is an act of deliberate failure, a main purpose of which is to prevent the recovery of the whole or part of the section 75 debt. The new clauses will be operated and enforced by the pensions regulator, in the context of meeting its objectives, to reduce calls on the PPF and to protect the benefits of scheme members. 
 It is envisaged that the regulator will work closely with the PPF, probably through a joint early-warning team, in operating the functions that will be so crucial in protecting the PPF from abuse. The powers will be 
 reserved to the determinations panel and exercised by standard procedure, and will be subject to the powers to vary and revoke contained in clause 75. 
 The powers will need to be exercisable by the regulator, as the very nature of the actions that they are designed to capture is such that manipulation may occur some time before the PPF would normally get involved in a scheme as a result of an employer insolvency. Moreover, the pensions regulator will have the intelligence and expertise, as a result of its day-to-day work monitoring pension schemes, to deal proactively with the risks of moral hazard. 
 When the regulator identifies that an act or a failure to act has taken place with a view to avoiding a section 75 liability, the new clauses will allow it to require a person or company involved in that action to pay a contribution into the scheme. The contribution required will replace the section 75 debt, which could otherwise have been recovered from the legal employer. The maximum contribution that the regulator can require will be calculated by reference to the section 75 debt that might otherwise have been recoverable from the employer had it been triggered at the time of the act concerned.

Adam Price: I apologise for interrupting the Minister's flow, but can he explain why, when we have debated the principle of retrospection in the context of Allied Steel and Wire and other pension funds, this measure will have retrospective effect?

Malcolm Wicks: May I hang on to that important point and deal with it at the end of my speech?
 New clause 39 provides that the regulator can require contributions to be paid by an employer and those connected to or associated with the employer, including members of the same company group, controlling shareholders, directors and the owners of unincorporated businesses, where they are party to the act, or deliberate failure to act, in question, which can include knowingly assisting in such an act or failure. 
 The regulator must also be of the opinion that it is reasonable to impose that liability on that person. Subsection (6) sets out a series of factors to which the regulator should have regard, where relevant, in considering whether it is reasonable to impose liability on a particular person, such as the role of the person concerned in the act or deliberate failure, how closely connected he or she is to the legal employer and to the pension scheme, and the person's financial circumstances. 
 If the act also constitutes a notifiable event under clause 44, any failure to notify can also be taken into account. That provides a further incentive to notify such events promptly. The regulator can decide to impose liability for a contribution notice on more than one person and can allocate proportions of the contribution against different persons, or decide that the contribution liability shall be joint and several, so that it can claim the whole amount against any one person if it wishes. 
 New clause 41 also provides that the contribution is a debt due to the trustees or managers of the scheme, but that the regulator may enforce the debt on their behalf. It also deals with the PPF becoming involved with the scheme during an assessment period, in which case it will take over enforcement from the trustees or regulator. New clause 42 deals with there being an outstanding debt due under section 75 of the 1995 Act from the legal employer at the same time as an outstanding contribution notice. The regulator will have power to prevent the trustees from recovering that debt at the same time as the contribution liability where it is not sensible for both to happen.

Steve Webb: The Minister saying that the powers may be invoked where the PPF becomes involved in a scheme has slightly surprised me. Perhaps it should not have done, as that implies that the employer has become insolvent. That being the case, where does the priority of reclaiming the money from the insolvent employer rank? Does it go to the top and make first claim on any money that the employer has? Does it trump other debts that the employer might leave, having become insolvent?

Malcolm Wicks: I had better seek advice on that and come back to the hon. Gentleman. The powers are designed to be flexible. Employers have access to expensive legal advice, and unscrupulous employers might find ways to circumvent the provisions. The regulator must be able to adapt to deal with that if the provisions are to be workable and if they are to represent a real deterrent. The key test is therefore the purpose behind actions or failures to act. If the regulator is satisfied that the main purpose is to reduce, avoid or prevent recovery of the debt due under section 75 of the 1995 Act, it can issue a contribution notice.
 We are also aware of cases in which employers might already have taken action aimed at dumping liabilities on the PPF, despite the clear warning given by my right hon. Friend the Secretary of State during the debate following the announcement of our proposals to implement the PPF: 
 ''We will have to introduce protection against engineering designed to circumvent the intent of our proposals.''—[Official Report, 11 June 2003; Vol. 406, c. 696.] 
The new clauses are thus designed to guard against such manipulation and will apply to actions taken after 11 June 2003 when the proposal to introduce the PPF was announced. So, in answer to the hon. Gentleman's point, as those of us from north London would say, we are not going to let the crooks get away with it. That is why the new clauses must be retrospective. It would be totally wrong if, after announcing something in Parliament, we gave people a clear run of some months to circumvent the will of Parliament. 
 I am sure that hon. Members appreciate how important it is that the regulator has the right tools to enable it properly to protect the PPF from abuse. That is why I am asking them to accept our proposals. 
 On the hon. Gentleman's point about the ranking of reclaiming the money, I am advised that the debt will usually be claimed against a different company if the employer is insolvent. For example, a company and a pension scheme might be in difficulty because of actions taken or not taken by others, and we might claim against the parent company in that circumstance, so it will not be a priority debt in the normal sense. 
 With regard to the pension rights of working people, the possibility of pension dumping is a new guise for the unacceptable face of capitalism. It is in the interests of good employers that we are on to the small minority of bad employers over pension dumping. The provisions will be supported by most employers and trade unions. It is intolerable to think that people might get away from their obligations under the new legislation. The Government will not tolerate that and will prevent such abuse.

Nigel Waterson: Let me say straight away that we take the view that these are important provisions. They are badged as moral hazard provisions, but they are really designed to deal with perverse incentives, and technically could be called anti-avoidance provisions. They are necessary, and we do not argue with the need for them.
 As the Minister said, the provisions arise from the debt that crystallises under section 75 of the Pension Act 1995, where there is a shortfall between the scheme's assets and liabilities. That amount is treated as debt due from the employer to the scheme trustees or managers. It was always the case that in setting up the PPF, and certainly from looking at the American experience, we had to be alive to the problems of moral hazard or anti-avoidance provisions. 
 The Minister has made the point that moral hazard comes in different shapes and sizes. There is the company that feels able to take more liberties with the way it runs its scheme with regard to the riskiness of its investments and so on, bearing it in mind that a safety net exists in the shape of the PPF. However, as we have consistently made clear, people should not run away with the idea that the PPF is a complete safety net or guarantee. I was rather disturbed the other day to see the suggestion on a BBC website that it is a guarantee of 100 and 90 per cent. respectively. We know that it is nothing of the sort. The benefits payable might be significantly less than those that were to be paid in due course. 
 There are also more subtle versions of moral hazard. One thing flagged up by Steve Kandarian when I met him in America and when he gave his excellent lecture at Imperial college last Thursday was the perverse incentives for wage bargaining. Unions might bargain with management in, say, a steel mill or one of those smokestack industries that typically dominate the finances of the PBGC, and rather than offer cash it is much easier for the employer to offer generous pension benefits knowing that the company will not have to find the money for a long time and, depending on the company's health, may not have to find it at all when 
 the PBGC is waiting out there if things go wrong. There is certainly a strong feeling on the part of the PBGC that some negotiations and their outcomes have been structured in such a way as to increase the moral hazard for the PBGC. The Government are right to be alive to that. 
 The Minister has kindly taken us through many of the points that have arisen. We Opposition Members think it risible to put forward as the main justification for introducing a cap on compensation the argument that a cap will deter key decision makers from mucking things up as regards the pension scheme. We all know that the reason for the cap is to reduce the money paid out by the PPF—nothing more, nothing less—and it is convoluted reasoning to say that that is why the Government are introducing it. 
 The Minister made the point that none of the provisions is new; they have all been flagged up, not only by the Secretary of State, but through comparisons with the situation in America. I am sure that lessons have been learned from what the Americans have had to say. The Minister quite rightly set out a situation in which a company group has a variety of different companies and one is singled out as being deprived or starved of assets. That may well be the one responsible for a particular pension fund. 
 The hon. Member for Northavon will be delighted to see that the powers in the proposal are reserved to no less a body than the determinations panel, which makes a welcome reappearance. I was rather worried that we might have lost sight of it, but here is our old friend, which will have a crucial role to play in these matters. 
 It is envisaged in the explanatory notes that the regulator and the PPF will work closely together, particularly on the concept of a joint early-warning team—something that the Americans seem to have developed successfully, judging from our discussions in Washington. They have done a lot of work in recent years to build up an effective early-warning scheme. 
 I am not sure that the Minister will want to go as far as Mr. Kandarian, one of whose innovations was to announce to the markets the 10 most underfunded schemes. There is an element of self-fulfilling prophecy to some of what we are talking about, but if we are to have such a set-up it is important that it is not only responsive to what happens, but out there trying to identify problems in advance. 
 In response to an intervention by the hon. Member for East Carmarthen and Dinefwr (Adam Price), the Minister discussed the question of retrospectivity. The hon. Member for East Carmarthen and Dinefwr got a bit excited about whether the provision is a loophole through which the 60,000 people who have already lost out on their pensions can somehow march, but sadly the measure relates only to the anti-avoidance stuff and dates back to the Secretary of State's statement to the House in June last year.

Adam Price: That proves that when it suits their purpose—of course, we support the motivation behind the new clause—Governments do, on occasion, act retrospectively. They could do so in this case, and in the case of the ASW workers, too.

Nigel Waterson: The hon. Gentleman makes a good point. Governments, particularly ones with as large a majority as the current one, can do almost anything they want. After all, only a few weeks ago the Orwellian line was that unclaimed assets belong to someone and therefore cannot be touched, but suddenly they can be pillaged ruthlessly by the Chancellor to prop up the failing national lottery, and can be given to charities. We will no doubt return to that at much greater length on Report.
 There is a lovely line in the explanatory notes that I must share with the Committee: 
 ''Opra is aware of possible cases where, in spite of the Secretary of State's warning''— 
the temerity of these people!— 
''it appears that some employers may have already taken action aimed at dumping liabilities on the PPF''. 
Absolutely! That is spot on. We have said throughout Committee that there are any number of stories about schemes that are just staggering on, waiting for the PPF to set up shop. That is why we have had so much to say about how the levy will be calculated in the early stages and about the financial health of the PPF in its early years. Therefore, I think that the Government are, perhaps belatedly, right to be taking that problem seriously. We see that there is the power for the regulator to require a contribution where there is 
''an act or a deliberate failure to act''. 
The Minister might be able to help me on this, but I am not quite sure what rights of challenge there are to those contribution notices. I have a vague recollection that when we dealt with contribution notices there were rights of challenge against one being made, so that an employer can justify what has happened on perfectly legitimate grounds, or against a decision not to have one. I have a feeling that something in the Bill already deals with that. 
 Things such as stripping assets, large dividends, withdrawing funding and transferring employees have been mentioned. There are any number of dodges that could produce the same result; the question of derivatives was also touched on. What is important is that no one sees the PPF as simply a device for sorting out other problems rather than the simple problem of people's pensions being jeopardised by a company going out of business. There is a great imperative behind the provisions and we will discuss the next group of new clauses in more detail, touching on a different aspect of moral hazard. 
 If people can use those loopholes, that could render worthless much of what we are trying to do in the legislation. I hope that the provisions are exhaustive. I am sure that the Government have taken the most effective and expensive advice available to ensure that they are, because one can be sure that companies will take the most expensive advice available to try to find a way round them. Time will tell, but that matter might have to be revisited in due course. 
 Do the Government envisage that there might be a basis for revisiting those matters urgently if a loophole opens up that has not been dealt with? How do they think that such a situation might be worked out? As sure as eggs are eggs, somebody, somewhere, will come 
 up with a way of getting round even those anti-avoidance provisions. Broadly speaking, however, and subject to some of the detail, which we have had limited time to absorb, we support those anti-avoidance measures.

Steve Webb: Like the hon. Gentleman, I do not think that any of us objects to attempts to ensure that the PPF is not abused by companies reordering their affairs artificially to increase a pension fund deficit and put the money elsewhere. Therefore, we also welcome these new clauses in principle.
 I have a few general questions that are partly prompted by the hon. Gentleman's concluding comments on whether we would close a new loophole that popped up. It is difficult not to notice that this group and the next contain 12 proposals to deal with moral hazard, which were written at the last minute, in addition to what was already in the Bill. I want to ask the Minister a strategic question: what is the judgment as between a case-by-case approach of, ''Oh, we have thought of another loophole, so we will shut it,'' and a general anti-moral hazard clause? In other words, what is the thinking? One cannot pre-empt or guess every new tactic that might be adopted. There might be ways to exploit the system that are not yet possible but which will become so—for example, new financial instruments or new corporate structures that cannot be anticipated at this point. 
 One question, which I guess occurs with anti-avoidance material generally, is, why is there not just one clause that says that the regulator can issue a contribution notice to any company that has artificially restructured its affairs to minimise its burden and maximise that on the PPF? Why are there 12 proposals in addition to the bits that are in the Bill already, rather than a general power? I am sure that there is a good reason for that, but I do not know what it is and I would be grateful if I found out. That raises the issues that were properly referred to by the hon. Member for Eastbourne: one cannot second-guess everything and there is always bound to be another way around. So, why not have a general anti-avoidance power? 
 The answer to this might be in the detail of the new clauses, but I could not spot it. Therefore, my second question is, can the contribution notice, and the payment that will be required, trigger an insolvency event? If a company that is fairly close to the wire is mucking about with its finances to put the burden on the PPF, but the motivation is the fact that it will go to the wall if it does not do something and it can limp on for a while by taking such action, could the contribution notice tip it over the edge? Would the regulator consider such things? Will there be any limits in that respect? I will be interested to hear the Minister's reply. I almost called him the Secretary of State—that was obviously a moment of prophecy. 
 The hon. Member for Eastbourne has referred to the fact that the Occupational Pensions Regulatory Authority already provides early warning of such activities. The Committee would very much like to 
 hear a lot more about that from the Minister. The briefing with which we have helpfully been provided contains the throw-away comment: 
 ''Opra is aware of possible cases where . . . some employers may have already taken action aimed at dumping liabilities on the PPF''. 
Perhaps the Minister cannot name names, but can he give us some idea of the scale of the problem? Are we talking about the odd company or lots of companies? Small companies or big companies? Thousands, millions or hundreds of millions of pounds? For a throw-away comment, it is quite important, and I think that the Committee would like to have as much as possible on the record about the scale of the problem, at which we have hinted throughout our proceedings. 
 I have one final, slightly anoraky, question. No matter many how times I read the title of new clause 39, I cannot work out the grammar. The title is: 
 ''Contribution notices where avoidance of employer debt'', 
and one feels that there should be more words after it or in it. Perhaps it is just my problem, but I have never been good at the passive voice. The titles of clauses are amendable, and although we did not get round to tabling an amendment, will the Minister take another look at the grammar of the title? It makes no sense to me. 
 That said, we are content with the general content of the new clauses. We simply wonder why there is no general anti-avoidance strategy and no general clause. Why are we trying to think up ways of tackling the issue now? The fact that the new clauses have been tabled so late in the day suggests less that the problem has only just dawned on the Department than that it knows that it has the luxury of being able quickly—or, perhaps, slowly—to scribble down a new clause and stick it in the Bill before the ink is dry. Once the Bill receives Royal Assent, that luxury will not be available, so should we include a general provision rather than try to second-guess all the specific examples?

Malcolm Wicks: This has been a useful discussion of our important proposals. I take the point made by the hon. Member for Eastbourne that we can use what terms we like, including moral hazard, but anti-avoidance is an important one. Incidentally, although we do not want to revisit this whole issue now, the cap on the amount of pension that a scheme member can receive is part of our moral hazard and anti-avoidance strategy. If a few top executives had pension rights of more than £100,000 a year and thought that they could get that out of the PPF, that might well influence their judgments about the company's future. The present measure is part of our armoury, and I want to defend the proposal that we discussed previously.
 On wage bargaining risk, any benefit improvements within the three years prior to insolvency are not covered by the PPF. We discussed that before, and it is part of our thinking about moral hazard. 
 The hon. Gentleman again talked about experiences in the United States. Those are rich experiences, which have helped us to develop our thinking. The structure of company law in the United States is different from that here, but we have learned a number of key lessons from the experience of the Pension Benefit Guaranty Corporation. Company restructuring is a key risk area in terms of moral hazard; that is one lesson that we learned from the United States—although we perhaps did not need to do so, because the point is self-evident anyway. However hard we try, we will not be able to foresee every possible abuse. Some companies will seek to get round our provision, so it must be flexible and adaptable in operation. The regulator and the PPF must have access to a high-quality, knowledgeable early-warning team with access to the best available intelligence. We have borne all those lessons in mind in developing our proposals. 
 The hon. Gentleman asked about what one might almost call rights of appeal to his old friend the determinations panel, which is also close to the heart of my ministerial colleague. Reserving the decision to the determinations panel means that all directly affected parties may make representations and that there may be an appeal to the independent pensions regulator tribunal if necessary. 
 It is always important to question how we stay ahead of the game. We must not fall behind when it comes to the unscrupulous and no doubt very expensive advice that some bad companies might receive. We have deliberately framed the powers broadly, in the hope that they will be adaptable to different circumstances. A number of critical details are in the form of regulations and can therefore be revised. The regulator will take a proactive approach to spotting new abuses. 
 I must admit that the Fabian in me finds himself rather attracted to the idea of a general power, but I am advised by my cooler, more diplomatic colleagues in the Department that a regulator cannot be all-powerful, because of considerations under the European convention on human rights. I make no promises, but I would like to reflect on the idea. I think that a similarly interesting debate is going on about taxation. 
 The question whether one could push a company over the edge by requiring contributions from it is important. I am advised that, in requiring contributions, the regulator has to take account of certain factors including the financial circumstances of the company. We should not forget that we are talking about, as it were, another company in the group. The regulator has to have regard to the financial circumstances. It would be unlikely to impose a debt where that would force a company into insolvency. That would hardly make sense. 
 When it comes to the use of English and grammar, I do not know what to say. I should look at that matter. We like to speak the Queen's English in a proper manner, so if it ain't right we will look at it. 
 Question put and agreed to. 
 Clause read a Second time, and added to the Bill.

Column Number: 777

New Clause 40The sum specified in a section [Contribution notices where avoidance of employer debt] contribution notice

The sum specified in a section [Contribution notices where avoidance of employer debt] contribution notice

'(1) The sum specified by the Regulator in a contribution notice under section [Contribution notices where avoidance of employer debt] may be either the whole or a specified part of the shortfall sum in relation to the scheme. 
 (2) Subject to subsection (3), the shortfall sum in relation to a scheme is— 
 (a) in a case where, at the relevant time, a debt was due from the employer to the trustees or managers of the scheme under section 75 of the Pensions Act 1995 (c.26) (''the 1995 Act'') (deficiencies in the scheme assets), the amount which the Regulator estimates to be the amount of that debt at that time, and 
 (b) in a case where, at the relevant time, no such debt was due, the amount which the Regulator estimates to be the amount of the debt under section 75 of the 1995 Act which would become due if— 
 (i) subsection (2) of that section applied, and 
 (ii) the time designated by the trustees or managers of the scheme for the purposes of that subsection were the relevant time. 
 (3) Where the Regulator is satisfied that the act or failure to act falling within section [Contribution notices where avoidance of employer debt](4) resulted— 
 (a) in a case falling within paragraph (a) of subsection (2), in the amount of the debt which became due under section 75 of the 1995 Act being less than it would otherwise have been, or 
 (b) in a case falling within paragraph (b) of subsection (2), in the amount of any such debt calculated for the purposes of that paragraph being less than it would otherwise have been, 
 the Regulator may increase the amounts calculated under subsection (2)(a) or (b) by such amount as the Regulator considers appropriate. 
 (4) For the purposes of this section ''the relevant time'' means— 
 (a) in the case of an act falling within subsection (4) of section [Contribution notices where avoidance of employer debt], the time of the act, or 
 (b) in the case of a failure to act falling within that subsection— 
 (i) the time when the failure occurred, or 
 (ii) where the failure continued for a period of time, the time which the Regulator determines and which falls within that period. 
 (5) For the purposes of this section— 
 (a) references to a debt due under section 75 of the 1995 Act include a contingent debt under that section, and 
 (b) references to the amount of such a debt include the amount of such a contingent debt.'.—[Malcolm Wicks.] 
 Brought up, read the First and Second time, and added to the Bill.

New Clause 41 - Content and effect of a section [Contribution notices where avoidance of employer debt] contribution notice

'(1) This section applies where a contribution notice is issued to a person under section [Contribution notices where avoidance of employer debt]. 
 (2) The contribution notice must— 
 (a) contain a statement of the matters which it is asserted constitute the act or failure to act which falls within subsection (4) of section [Contribution notices where avoidance of employer debt],
 (b) specify the sum which the person is stated to be under a liability to pay, and 
 (c) identify any other persons to whom contribution notices have been or are issued as a result of the act or failure to act in question and the sums specified in each of those notices. 
 (3) Where the contribution notice states that the person is under a liability to pay the sum specified in the notice to the trustees or managers of the scheme, the sum is to be treated as a debt due from the person to the trustees or managers of the scheme. 
 (4) In such a case, the Regulator may, on behalf of the trustees or managers of the scheme, exercise such powers as the trustees or managers have to recover the debt. 
 (5) But during any assessment period (within the meaning of section 104) in relation to the scheme, the rights and powers of the trustees or managers of the scheme in relation to any debt due to them by virtue of a contribution notice are exercisable by the Board of the Pension Protection Fund to the exclusion of the trustees or managers and the Regulator. 
 (6) Where, by virtue of subsection (5), any amount is paid to the Board in respect of a debt due by virtue of a contribution notice, the Board must pay the amount to the trustees or managers of the scheme. 
 (7) Where the contribution notice states that the person is under a liability to pay the sum specified in the notice to the Board, the sum is to be treated as a debt due from the person to the Board. 
 (8) Where the contribution notice so specifies, the person to whom the notice is issued (''P'') is to be treated as jointly and severally liable for the debt with any persons specified in the notice who are persons to whom corresponding contribution notices are issued. 
 (9) For the purposes of subsection (8), a corresponding contribution notice is a notice which— 
 (a) is issued as a result of the same act or failure to act falling within subsection (4) of section [Contribution notices where avoidance of employer debt] as the act or failure as a result of which P's contribution notice is issued, 
 (b) specifies the same sum as is specified in P's contribution notice, and 
 (c) specifies that the person to whom the contribution notice is issued is jointly and severally liable with P for that sum. 
 (10) A debt due by virtue of a contribution notice is not to be taken into account for the purposes of section 75(2) and (4) of the Pensions Act 1995 (c. 26) (deficiencies in the scheme assets) when ascertaining the amount or value of the assets or liabilities of a scheme.'.—[Malcolm Wicks.] 
 Brought up, read the First and Second time, and added to the Bill.

New Clause 42 - Section [Contribution notices where avoidance of employer debt] contribution notice: relationship with employer debt

'(1) This section applies where a contribution notice is issued to a person under section [Contribution notices where avoidance of employer debt] and condition A or B is met. 
 (2) Condition A is met if, at the time at which the contribution notice is issued, there is a debt due under section 75 of the Pensions Act 1995 (c. 26) (''the 1995 Act'') (deficiencies in the scheme assets) from the employer— 
 (a) to the trustees or managers of the scheme, or 
 (b) where the Board of the Pension Protection Fund has assumed responsibility for the scheme under Chapter 3 of Part 2 (pension protection), to the Board. 
 (3) Condition B is met if, after the contribution notice is issued but before the whole of the debt due by virtue of the notice is recovered, a debt becomes due from the employer to the trustees or managers of the scheme under section 75 of the 1995 Act.
 (4) The Regulator may issue a direction to the trustees or managers of the scheme not to take any or any further steps to recover the debt due to them under section 75 of the 1995 Act pending the recovery of all or a specified part of the debt due to them by virtue of the contribution notice. 
 (5) If the trustees or managers fail to comply with a direction issued to them under subsection (4), section 10 of the 1995 Act (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance. 
 (6) Any sums paid— 
 (a) to the trustees or managers of the scheme in respect of any debt due to them by virtue of the contribution notice, or 
 (b) to the Board in respect of any debt due to it by virtue of the contribution notice, 
 are to be treated as reducing the amount of the debt due to the trustees or managers or, as the case may be, to the Board under section 75 of the 1995 Act. 
 (7) For the purposes of this section— 
 (a) references to a debt due under section 75 of the 1995 Act include a contingent debt under that section, and 
 (b) references to the amount of such a debt include the amount of such a contingent debt.'.—[Malcolm Wicks.] 
 Brought up, read the First and Second time, and added to the Bill.

New Clause 44 - Financial support directions

'(1) This section applies in relation to an occupational pension scheme other than— 
 (a) a money purchase scheme, or 
 (b) a prescribed scheme or a scheme of a prescribed description. 
 (2) The Regulator may issue a financial support direction under this section in relation to such a scheme if the Regulator is of the opinion that the employer in relation to the scheme— 
 (a) is a service company, or 
 (b) is insufficiently resourced, 
 at a time determined by the Regulator which falls within subsection (7) (''the relevant time''). 
 (3) A financial support direction in relation to a scheme is a direction which requires the person or persons to whom it is issued to secure— 
 (a) that financial support for the scheme is put in place within the period specified in the direction, 
 (b) that thereafter that financial support or other financial support remains in place while the scheme is in existence, and 
 (c) that the Regulator is notified in writing of prescribed events in respect of the financial support as soon as reasonably practicable after the event occurs. 
 (4) A financial support direction in relation to a scheme may be issued to such one or more of the persons falling within subsection (5) as the Regulator considers appropriate. 
 (5) A person falls within this subsection if the person— 
 (a) is the employer in relation to the scheme at the relevant time, or 
 (b) is, at the relevant time, connected with or an associate of the employer. 
 (6) A financial support direction must identify all the persons to whom the direction is issued. 
 (7) A time falls within this subsection if it is a time which falls within a prescribed period which ends with the determination by the Regulator to exercise the power to issue the financial support direction in question. 
 (8) For the purposes of subsection (3), a scheme is in existence until it is wound up. 
 (9) No duty to which a person is subject is to be regarded as contravened merely because of any information or opinion contained in a notice given by virtue of subsection (3)(c).
 This is subject to section 234 (protected items).'.—[Malcolm Wicks.] 
 Brought up, and read the First time.

Malcolm Wicks: I beg to move, That the clause be read a Second time.

Win Griffiths: With this it will be convenient to discuss the following:
 Government new clause 45—Meaning of ''service company'' and ''insufficiently resourced''. 
 Government new clause 46—Meaning of ''financial support''. 
 Government new clause 47—Contribution notices where non-compliance with financial support direction. 
 Government new clause 48—The sum specified in a section [Contribution notices where non-compliance with financial support direction] contribution notice. 
 Government new clause 49—Content and effect of a section [Contribution notices where non-compliance with financial support direction] contribution notice. 
 Government new clause 50—Section [Contribution notices where non-compliance with financial support direction] contribution notice: relationship with employer debt. 
 Government new clause 51—Sections [Financial support directions] to [Section [Contribution notices where non-compliance with financial support direction]: relationship with employer debt]: interpretation.

Malcolm Wicks: We are making good progress today and speeding through the selection list, albeit we are providing proper scrutiny. The Department is keeping up with the Minister, which is always useful.
 The new clauses in the group deal with moral hazard and other matters and follow on from the debate on the new clauses that we have just agreed. They address specific acts undertaken or omissions made by employers and connected persons with a view to avoiding their pension liabilities. However, there may be circumstances in which, as a result of actions that may well have been perfectly legitimate and not aimed at avoiding pension liabilities, schemes end up with a participating employer who is financially weak and unable to meet its pension liabilities. In particular, that may apply in the case of the debt on the employer imposed under section 75 of the 1995 Act in the event of the scheme winding up or the sponsoring employer becoming insolvent. 
 An example of that is the use of service companies, often as part of entirely legitimate group arrangements. Such entities frequently have no material assets and their sole revenue comes from amounts charged to other group companies for the service of the employees, pursuant to inter-company agreements. If the parent company wishes to dump its pension liabilities, it can simply terminate its agreement with the company and wind both it and the scheme up. The service company will have no assets with which to pay any section 75 debt due. Similarly, the participating employer may, by chance, be a weak member of the group, equally unable to meet any debt and suitable to be sacrificed by the parent in order to reduce the group's pension liabilities. I am sure that 
 hon. Members will agree that, in general terms, sponsoring employers of pension schemes should be genuine entities carrying on a material trading activity or holding material assets, so that the employer guarantee of the scheme is meaningful. 
 The provisions in new clauses 44 to 51 give the regulator the power to issue a notice requiring that appropriate financial support be put in place where it concludes that the sponsoring employer of a scheme either is a service company or is insufficiently resourced for it to be appropriate for that company to bear its share of the group's pensions liabilities when its net assets are compared with those of other connected or associated persons. Such persons will include members of the same company group, controlling shareholders, directors, and the owners of unincorporated businesses. 
 The regulator may issue a direction requiring that financial support for the scheme be put in place to one or more of the persons set out in new clause 44(5), as considered appropriate. A direction can thus be issued to the employer and to any person connected or associated with the employer. The direction will not place a heavy burden on responsible employers who, as a result of perfectly legitimate business transactions, find themselves with a comparatively weak or service company as the sole sponsoring employer of the pension scheme. 
 The group can put in place a range of reasonable and flexible financial support arrangements in order to comply with the direction, as set out in new clause 46. They include: the application of joint and several liability for pension liabilities across the whole company group, so that the debt on the employer could be claimed against any member of the group; an agreement by the ultimate parent company within the group, whether it is participating in the scheme or not, to meet the employer's pension liabilities; and the provision of an arrangement whereby additional financial resources are provided to the scheme, for example, an appropriate bank guarantee. 
 As well as the arrangements that I have outlined, companies will always have the option of moving the liabilities out of the weak company to a stronger one, or strengthening the company before the direction is issued. There will be advance warning of the direction. However, if a person fails to comply with a direction to put in place financial support, the regulator may issue a notice requiring that a contribution be made to the pension scheme. Enforcement action will thus be taken only against those employers who have deliberately manipulated company structures in order to rid themselves of pension liabilities, or who refuse to provide adequate safeguards for their workers' pensions. 
 Where there is non-compliance with a financial support direction, the regulator may issue a contribution notice 
 ''to any one or more of the persons to whom the original direction was issued''. 
It can do that only if it is of the opinion 
''that it is reasonable to impose liability on the person to pay the sum specified in the notice.'' 
 New clause 47 sets out the matters to which the regulator should have regard when considering whether it is reasonable to impose liability, including: whether the person has taken reasonable steps to secure compliance with the financial support direction; the relationship that the person has or had with the employer or with the parties to any arrangements put in place; any connection that the person had with the pension scheme; and the financial circumstances of the person. 
 Should the regulator decide to impose liability on more than one person, new clause 49 will allow it to apportion liability for the contribution between different persons, or to decide that the contribution liability should be joint and several, so that it can claim the whole amount against any one person if it so wishes. In common with the provisions set out in new clauses 39 to 42, the contribution required will be calculated by the regulator with reference to the amount of the debt that would be due from the employer under section 75 of the 1995 Act if the debt were triggered and calculated at the time of the determination to exercise the power. If there is an outstanding section 75 debt from the legal employer at the same time as an outstanding contribution notice, the regulator will be able to suspend enforcement action by the trustees for recovery of the debt, pending recovery of the contribution liability, in circumstances in which it would not be sensible for both to happen at once. 
 Unlike the provisions in new clauses 39 to 42, these provisions do not relate to actions taken after 11 June 2003, because they deal with existing and continuing situations, or faits accomplis—as a good European, one must try to pronounce these things correctly—rather than specific actions. Therefore, where actions have been taken in the past to put weak companies in as sponsoring employers before the PPF is established, the regulator will be able to take action to address them after the PPF is established. 
 In order to provide comprehensive protection for scheme members and the PPF against employers who seek to rid themselves of their pension liabilities, the Government intend to legislate further, using regulations, to reform the position regarding the application of debt upon withdrawal from associated multi-employer schemes, which usually consist of several subsidiaries of one company. Currently, a company can withdraw from such a scheme and cease to be a sponsoring employer if other companies are left in, so that it will not be liable for any shortfall if the scheme winds up in the future. Employers can do that relatively cheaply, as the withdrawal debt is based on the minimum funding requirement. 
 The Government will amend regulations under sections 75(10) and 118(1) of the 1995 Act to provide that when a participating employer withdraws from a multi-employer scheme with associated employers, a full buy-out debt should be triggered unless appropriate financial support is put in place, in which case a scheme-specific debt will be payable. The financial support arrangements will be similar to those 
 outlined in new clauses 44 to 51, which deal with service companies or insufficiently resourced companies, with the additional option to transfer pension liabilities to an appropriate new scheme. 
 Those provisions will apply only to associated multi-employer schemes, as that is where the key risk of employer manipulation lies. They will not apply to multi-employer schemes made up of non-associated employers, except to the extent that there are associated employers within them, because employers who participate in such schemes are not owned or controlled by the same parent company. Therefore, there is not the same potential for one company to manipulate the arrangements. 
 The provisions in new clauses 44 to 51, and the proposed amendments to the regulations governing debt on withdrawal from associated multi-employer schemes, are designed to address situations in which, whether by chance or design, the pension liabilities are situated in a company that is substantially weaker than the rest of the group, or other parts of it. Such a situation increases the risk that the scheme will be abandoned without being able to recover the full scheme costs from the employer—leaving the PPF to pick up the bill—and the risk that certain members will have their benefits cut back even if other parts of the group would be able to meet the cost. 
 The message is that responsible employers with the resources to do so should put in place arrangements that are adequate to support their schemes. I am sure that hon. Members will support the principle and I urge them to accept the amendments.

Nigel Waterson: This is a second instalment of the moral hazard provisions. It poses more problems than the last group of new clauses, as the provisions are directed at people who might be blameless and could be doing something perfectly legitimate. I hope that we can recognise a crook—Robert Maxwell certainly was one—but in a corporate situation, pathological optimists can cause more damage than crooks. We are considering people who are not doing anything wrong, so it is difficult to pin down the type of behaviour that new clauses 44 to 51 seek to address.
 The use of service companies is common. Many large law practices use them to make legitimate tax savings, but they are not designed to avoid pensions 
 liabilities. However, it must be easy for a main company to cut its links with its service company when the going gets tough. It is a tricky matter. The Government say in the explanatory notes that they believe that 
''sponsoring employers of pension schemes should be genuine entities carrying on a material trading activity or holding material assets—so that the employer guarantee of the scheme is meaningful.'' 
Who could disagree with that aspiration? However, it is a difficult judgment to make; we do not want a lot of old Fabians—people with no experience of business or of running any kind of profit-making organisation—to have to judge whether companies are genuine entities or whether they are properly resourced. 
 There are two bases on which the regulator's powers will kick in. The first is where it concludes that the sponsoring employer is a service company. That is not difficult to do. In most cases, it will be called a service company and it will not require a bulldog or a bloodhound to reach that conclusion. The second category, in which the regulator concludes that a company is insufficiently resourced for the purposes—as required by new clause 44(2)(b) and defined in new clause 45(3)—is more difficult. It leapt off the page when I read the new clauses. How can any Government or Government-appointed body such as the regulator make such a judgment? 
 The employer is defined as being insufficiently resourced if 
''at that time the employer has insufficient net assets to enable it to meet a prescribed percentage of the estimated section 75 debt in relation to the scheme''. 
We have discussed how section 75 debt arose in the far-sighted Conservative legislation of 1995. However, our old friend ''prescribed'' crops up again. I assume that it is intended that there will be a series of regulations to prescribe the percentage. We are entitled to tease out of the Minister what the Government have in mind. What issues do they think should be taken into account in deciding the prescribed percentage? If the percentage were high, it would be onerous on somebody who was not doing anything wrong; if low, it would affect the protection offered. 
 It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
Adjourned till this day at half-past Two o'clock. 
Griffiths, Mr. Win ( 
 Chairman 
 Baird, Vera 
 Barker, Gregory 
 Brennan, Kevin 
 Cunningham, Mr. Jim 
 Dean, Mrs. 
 Edwards, Mr. 
 Hamilton, Mr. Fabian 
 Holmes, Paul 
 Jones, Mr. Kevan 
 Keeble, Ms 
 Khabra, Mr. 
 MacDougall, Mr. 
 Moran, Margaret 
 Pond, Mr. 
 Price, Adam 
 Robertson, John 
 Tynan, Mr. 
 Waterson, Mr. 
 Webb, Mr. 
 Wicks, Malcolm